D.T.I. Interest Rates Page

Rates

Interest

Points

Fixed Vs Adjustable Rates

Fixed rate Pros-

Your mortgage payment and interest rate stays the same for the length of the loan.

Fixed rate cons-

You will pay a higher interest rate so the lender will commit to lending you the money for a fixed period of time.
If interest rates fall significantly, you maintain your current rate.
There are sometimes prepayment penalties on fixed rate mortgages.

Adjustable rate pros-

Your interest rate is lower which may allow you to qualify for a higher loan amount.
Your principal and interest payments are lower
If your loan has no prepayment penalty you can refinance into a fixed mortgage at a later time.

Adjustable rate cons

It is difficult to budget your bills because your mortgage my change month to month

Even if rates ONLY rises 1-2% (and stay elevated) your adjustable rate loan will probably cost more in-the-end than a fixed rate.

This image of interest rates is for illustration purposes ONLY.

Rates seen advertised are usually the best-case-scenario interest-rates...

Meaning: an excellent credit-rating, a low debt-to-income ratio, and a good-downpayment.

Every Loan Program comes with a different interest rate, and rates fluctuate constantly.

How interest rates matters to you... is what interest-rate you get locked-into.

Let us take a moment to clarify rate quotes. There are many variables that are come into play when quoting an interest rate.

These variables include your FICO score, your loan amount, your loan to value percentage, and the type of property.

Many factors are involved in mortgage rate pricing, even your geographical location has an effect on borrowing costs.

So, just because you have a 740 FICO score doesn't mean you'll automatically qualify for the best rates although you should get a 'good' one

After your mortgage application has been accepted, that is when its time to focus on locking-in your interest-rate.

What to look for is a drop in rates (let's say) 3 days in a row or when rates are at it's lowest t in a 5-10 day window.

Remeber: you must go to settlement, usually, within 15-60 days. ( which is typically the rate-lock period )

Basically an interest rate is a function of Risk.. the risk You represent to a Lender.

Your interest rate will be based on several factors:

First, Your interest rate will be based on the Risk of you repaying the loan. There are four main factors considered; (1) your mid-credit score, (2) your Loan-toValue (3) Mortgage or rental history, and (4) your Debt-to-Income Ratio along with the ability to prove your income.

Secondly, Interest Rates are based on Bonds.. (IE: 2, 5, 7, or 10 year Bonds)
Example: A 30 yr (fixed) Note is based on a 10 year Bond. Lenders then add a margin to the bond rates to get their base interest rate, then adjustments are made to that base interest rate based on the the risk levels mentioned above.

Generally, interest rates are slightly higher for long term loans than a short term loans, because there's a greater chance of default over a longer period of time. The interest matrix is designed to give those with a higher mid credit score, a lower interest rate, because they carry a lower risk.

IE: If you can prove your income, and have a mid-credit score of 740 with a solid payment history; you can enjoy the best interest rates, Conversely if you cannot prove your income, your credit score is 600, and you have several 60 day late-payments on credit accounts then your interest rates will be higher.

One thing to keep in mind; the interest rates you see advertised are the best-case-scenario rates, and they do Not include rate adjustments for credit scores, loan amounts, different programs incentives or even locale. What you'll want is a personal rate quote. (specific to your situation)

Points are paid upfront, but by paying a point or more, generally allows a someone to get a lower interest rate, which in turn will lower your monthly payments on the mortgage. Conversely, paying no points results in a higher interest rate, so sometimes, it makes good financial sense to pay points or more

One point is equal to 1% of the loan amount. If you are purchasing a home, the points-paid is fully deductible on your taxes. (in the first year) The typical rule is for every point you pay, your interest will drop about 1/4 of a percent ( .250% )Depending on the size of the loan, this can result in significant savings.

Two factors to evaluate is the savings on your monthly payment and interest savings over the life of the loan. IE: To purchase a $200,000 property on a 30 year fixed-rate at 4.75%, the principle & interest monthly payment will be $1,043. The interest paid over the life of the loan will be $175,586
But by paying 1 point, on the same loan, the interest would drop to 4.50% making the P/I payment $1,013. In this example; there's a savings of about $30 per month and $10,800 for the life of the loan. Although 1 points did cost 1% (or $2,000) in this example, paying the point was a good idea.

What are Points.. And how do they affect me?

Points are fees paid to the lender broker and often linked to the interest rate; usually the more you pay in points, the lower the rate.

Paying Points on your mortgage loan isn't necessarily a bad thing.