Q & A: Interest Rates

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  1. Are interest rates negotiable?
  2. How are the rates set for seller financing?
  3. What is an adjustable rate mortgage?
  4. What is APR?
  5. What is the advantage of locking in an interest rate?
  6. What is the difference between fixed and adjustable rate loans?
  7. What is the value of locking in a mortgage rate?
  8. Where are interest rates headed?
  9. Where can I learn more about adjustable rate mortgages?

Are interest rates negotiable?

Some lenders will negotiate the interest rate on home loans, but this often depends on the buyer’s credit score and the number of points on the loan. Shop around with different lenders to find the best deal, and remember to pay attention to both the loan interest rate and the number of points.

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How are the rates set for seller financing?

The interest rates for seller financed loan are negotiable. The rate is agreed upon by both the lender and the borrower, and therefore it will vary for each transaction. Generally, the rate will be below the current market interest rate, but above the rate sellers could obtain with standard investments.

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What is an adjustable rate mortgage?

An adjustable rate mortgage (ARM) is loan with a variable interest rate that changes over the life of the loan. Usually an ARM starts at a set rate for a certain amount of time (for example, the first two years of the loan) and then the rate adjusts based on market indexes.

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What is APR?

APR stands for Annual Percentage Rate and represents the yearly rate charged for a loan.  

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What is the advantage of locking in an interest rate?

Locking in your mortgage rate guarantees that rate for your loan at closing, even if the rates go up. Likewise, if the rates go down, you are still locked in at your guaranteed rate. For this reason, everyone wants to lock-in their mortgage rate when rates are at their lowest. Unfortunately, there is no way to know when that will be. But, many prefer to take the chance of locking in and rates dropping, than take the chance of not locking in and rates rising. Speak to your lender regarding their lock-in process, if they charge any lock-in fees, and what their time limit is for their guarantee (most guarantees expire after 30-60 days).

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What is the difference between fixed and adjustable rate loans?

The interest rate for a fixed-rate mortgage will remain the same for the entire length of the loan, whereas the rate of an adjustable-rate mortgage will fluctuate. Generally, fixed-rate loans are more popular as they can provide greater savings over the life of the loan and provide the borrower with the ease of having the same payment amount each month. But, each loan type has their advantages and disadvantages, and the choice between the two is best decided based on the borrower’s situation.

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What is the value of locking in a mortgage rate?

Locking in your mortgage rate guarantees you will have that rate for your loan at closing, even if the rates go up. Likewise, if the rates go down, you are still locked in at your guaranteed rate. For this reason, everyone wants to lock-in their mortgage rate when rates are at their lowest. Unfortunately, there is no way to know when that will be. But, many prefer to take the chance of locking in and rates dropping, than take the chance of not locking in and rates rising. Speak to your lender regarding their lock-in process, if they charge any lock-in fees, and what their time limit is for their guarantee (most guarantees expire after 30-60 days).

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Where are interest rates headed?

Unfortunately, there is no way to know what direction interest rates are heading. Rates can fluctuate daily, and are known to go through periods of growth and decline. To feel more confident when you lock-in your mortgage rate, follow rates as you begin your home search to get a sense for the current market conditions.

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Where can I learn more about adjustable rate mortgages?

An adjustable rate mortgage (ARM) is loan with a variable interest rate that changes over the life of the loan. Usually an ARM starts at a set rate for a certain amount of time (for example, the first two years of the loan) and then the rate adjusts based on market indexes. Talk with your lender to learn more about ARM loans and meet with your financial advisor to see what type of mortgage loan is right for you.

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