Editor's choice: SoFi(NMLS #1121636)
- Prequalify without affecting your credit score
- Flexible terms beyond traditional 15- and 30-years
- Not available in: AK, HI, MO, NH, NM, NY, SD, WV
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
When you’re ready to buy a home — be it your first or third — shaving even half a point off your rate spells significant savings on interest over the long term. Compare mortgage types and rates in your area to make sure you’re starting the process from an informed place.
According to Freddie Mac, the 30-year fixed rate has risen to 3.18%, while the rate on a 15-year fixed-rate mortgage is 2.45% as of April 2. While the current 30-year rate is higher than the historic low of 2.67% on December 31, 2020, it’s still a good time for many homeowners to refinance and save money. While many factors affect rate changes over time, some experts believe the 30-year rate may reach up to 4% later in the year.
Interest on mortgages is generally paid monthly, which means you can divide the annual interest rate by 12. For example, if you took out a mortgage of $600,000 at 6.5% interest over 30 years, you’d usually pay a monthly rate of 0.54%* — interest on your principal.
For the first repayment, you would pay $3,240 interest plus principal. Each consecutive month, the principal would be less, meaning you’ll pay less interest.
*Be sure to check with your lender for more information on how your interest is paid over the life of your loan.
If you’re ready to start looking for your new home, explore the types of mortgages that are out there and see what works best for you. The most common are the adjustable-rate mortgage (ARM) and the fixed-rate mortgage.
A fixed-rate mortgage is the most common mortgage, with an interest rate that stays the same for the life of the loan. This means that both the payment amounts and the loan term — usually 10, 15 or 30 years — are fixed. With a fixed-rate mortgage, you have the security and peace of mind knowing what your payments will be each month, allowing you to budget more effectively. These rates can often be higher than the ones offered for ARMs, but you won’t be living with the uncertainty of fluctuating interest rates.
Also known as a variable rate mortgage, an ARM is a home loan with an interest rate that fluctuates based on market interest rates. This may seem like an attractive offer, but because your interest rate is not fixed, you’re taking on some uncertainty in knowing exactly how much you’ll pay each month over the life of your loan.
A hybrid ARM combines the uncertainty of an adjustable-rate mortgage with the predictability of a fixed-rate mortgage. A lender will offer a hybrid ARM with an initial fixed interest rate for a certain period of time — meaning your rates stay the same for five, seven, 10 or 15 years. Once that time is up, your rate will change based on the market rates and stay that way for six months or a year. If you have poor credit, this may be the only mortgage you qualify for.
Hybrid ARMs look like this:
If you take out an interest-only mortgage, you’ll pay only the interest on the loan over five to 10 years, and none of the actual loan amount. When the term is up, you can either pay the principal or convert it to an interest-and-principal loan (amortized) for the remaining life of the loan.
So, if you had a 30-year mortgage and the first 15 years were interest-only, the principal balance would be amortized for the remaining 15 years.
People opt for interest-only loans because it allows for a lower payment in the first few years of the loan, giving you more money for things like monthly bills or furnishing or improving your home. However, interest-only mortgages are riskier for lenders, often strapping you with higher interest rates.
If you decide on a NegAm, you’ll make smaller payments each month, paying only the principal amount — not the interest. But that doesn’t mean you’re off the hook. That interest you didn’t pay gets tacked on to the total amount you borrowed — and it’s subject to interest. So you’ll be paying interest on interest.
A NegAm could give you money upfront and giving you a reliable monthly payment, but beware. If the interest rates rise, the equity in your house will decline. And instead of paying down your debt with each mortgage payment, you’re actually adding on to it.
Balloon payment mortgages are when a lender gives you a lower interest rate and monthly payments for the term of the loan — usually five or seven years. When that term is up, you pay the remaining balance. It’s called a “balloon” payment because the size of that payment is often quite large.
These loans can benefit you if you’re sure your financial situation will improve, or you plan on selling the property in a few years — before your term is up. But balloon payment mortgages are risky. They were popular before the mortgage crisis in 2008, and the one that caused many to default.
Conforming loans usually come with lower interest rates and lower fees. These loans need to meet standards set by the government-sponsored agencies Fannie Mae and Freddie Mac. Limits can vary according to the housing market, but they’re usually less than $424,100 in most areas.
So if you want to purchase a home under the loan limit, you’ll be more likely to qualify. You’ll also have lower interest rates and may be able to make a lower down payment.
Nonconforming loans are loans that do not meet conforming loan standards. Borrowers most often see these in the form of jumbo loans. Because these tend to be a higher risk for the lender, they come with high interest rates, require a higher down payment and require a closer look at your credit before you can qualify.
Finding lenders with low mortgage rates is an important part of the process, but shouldn’t be the only consideration. Before applying, learn more by reading mortgage lender reviews and ask the lenders questions about their processes and fees.
Once you’re ready to start the homebuying process, make sure you understand the loans you qualify for. Knowing the basics and gathering information on the front end can give you a leg up with the lender, and could save you money and struggles down the road.
Find out how to increase your borrowing power and get approved for a mortgage even if you have a car loan.
Learn about what will happen to your home loan when you die and how to avoid any nasty situations with some pre-planning.
Check out our guide on the differences between mortgage brokers and bank loan officers. See which one will suit your needs.
From supply and demand through to location, facilities and planned infrastructure projects, there are plenty of factors that can influence property value.
Some lenders will approve a home loan even though you’re not receiving a permanent income. However, you’ll need to undergo some assessments.
Which is right for you?
A 101 guide covering the types of mortgage loans every homebuyer should know.
Invest in your retirement while enjoying tax breaks and peace of mind.
A business line of credit is a useful tool. But as a startup, you may not qualify for the best interest rates with most lenders. Explore your options — and alternatives — for flexible funding as a new business.
The Restaurant Revitalization Grant offers grants of up to $10 million to make up for revenue lost during COVID-19.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.