With a mortgage typically being one of the most expensive purchases that you’re ever going to make, it’s important to understand how interest rates work as they can determine how much you are paying monthly.
Essentially, when you’ve taken out a mortgage you’re going to pay it back every month along with the monthly interest accrued. When you speak to the lender that you are borrowing from, they will break down the payment structure along with how much the interest tacks on to your monthly payment. It’s important to note that your credit plays a major factor in the interest rate that you are going to get. If you have a satisfactory or poor credit score, expect to see higher interest rates that are increased by over 1%.
If you don’t think that 1% is a lot and that it shouldn’t be too big of a deal put it this way; that 1% could equal to thousands of dollars extra over the term of the loan.
Lenders typically give you two types of loans which are the fixed rate loans and the adjustable rate loans. The primary difference between the two is that the fixed rate loans’ interest rate doesn’t change while the adjustable rate can fluctuate depending on the market condition.
The longer that you stretch the term of your loan, the more interest you’re going to be paying. If you have the money and opt for a 15-year loan versus a 30-year loan, that’s 15 years of extra interest that you’re saving. Again, the money being paid may go up to the thousands purely by interest. Don’t underestimate the fact that your interest rate, even raised by half a percent, will cost you a lot in the long run.