Understanding how your loan works can possibly save you money in the long run.
In other news, even with a perfect credit score, this will still not be the interest rate you’ll end up with for your home loan.
There are a lot of factors that go into determining how high (or low) mortgage interest rates will go. The buying and selling of Mortgage-Backed Securities make up a large part of the “cost of lending money.” The simple explanation behind Mortgage-Backed Securites (MBS) is that your loan may be sold by your lender, along with a group of other loans, to a securities broker who will bundle them and sell them on the open market to investors, who make their money either from trading, or by money brought in through payments and equity.
Interest rates, like other stock prices, are determined on many economic factors, both nationally and internationally. The real estate market of course has a lot to do with where interest rates fall. Since November 2008 however, the Federal Reserve has guaranteed government issued MBS to the tune of $85 billion*, which has helped keep rates nominal since investors are guaranteed a return on their investment.
*Beginning in 2014, the Federal Reserve has begun reducing its monthly stimulus. As of this date, their monthly investment commitment has dropped to $55 billion.
APR=Annual Percentage Rate
Okay, so we gave you a brief overview of how interest rates work, but why is your lender giving you an “APR” rate that is higher than the posted interest rates?
APR, which stands for Annual Percentage Rate, calculates not only the base rate, but costs incurred as part of your loan. Lenders make their money through these fees, and they include points, broker fees, and other charges that you have to pay to obtain your mortgage loan. These fees may include closing costs as well. This is why your APR is usually higher than your interest rate.
That being said, some lenders will allow you to “buy down” your interest rate at the time you obtain your loan. This would include your paying a lump sum up front in an effort to lower your overall APR.
Shop around, and trust us to help you find the right loan for you!
Lending fees may vary, and it is best to shop around for the best rate. We can help you find the right lender so that you can achieve all of your real estate goals. Contact us for a no obligation home buying consultation.
Keller Williams VIP Properties
25124 Springfield Court, Suite 100
Valencia CA 91355