Learn More About Mortgage Loan Rates
Posted on May 8, 2009 in the Mortgages category
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A loan that uses real estate as capital is known as mortgage. A mortgage loan rate, on the other hand, is defined as the interest rate charged on a mortgage. Mortgages may be classified as residential or commercial mortgages. In a residential mortgage, the self-occupied residential property of a borrower is provides a collateral.
A commercial mortgage, on the other hand, is a loan for which real estate other than a residential property occupied by the borrower is provided as collateral to secure payment of the principal and interest or just the interest. Usually, in the case of commercial mortgages, the collateral is an office, commercial building, store or other business real estate.
Commercial mortgages are usually made by businesses that require the money for working capital, purchasing new equipment, or maybe an expansion. Since a business can be formulated as a partner of a limited liability firm, the assessment of the business’ creditworthiness by a financial institution is relatively more complex.
Mortgage loan rates for a residential mortgage actually differ from the commercial mortgage, as rates are usually higher for the commercial ones. It is because the risk that is associated with residential mortgages, and the default percentage is lower, compared to commercial mortgages.
Mortgages may also be classified as fixed rate mortgages and adjustable rate mortgages. Both fixed rate as well as adjustable rate mortgages can be obtained for residential and commercial mortgages. The initial interest rate of an adjustable rate mortgage is lower than the interest rate for a fixed rate mortgage.
The Federal Reserve Board primarily governs mortgage loan rates and if the board changes the interest rates, the mortgage lenders should then adjust their interest rates accordingly. They are also influenced by economic and market factors such as inflation.
Lower rates can be availed if you pay a down payment of 20% or more of the loan amount. And if you make a 5% down payment or less of the loan amount, you can only be qualified for a higher interest loan.
Generally, mortgage loan rates fall between 5% and 13%. Long term loans have slightly higher interest rates than the short-term ones, and the difference is usually below 1%. Loan rates may also differ with mortgage loan types like home equity loans, FHA loans, VA loans, commercial loans, home improvement loans, and bad credit/sub prime mortgage loans.
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