Purchasing a home often requires taking out a mortgage loan, but each type of loan comes with a different interest rate attached. The interest rate for a person with good credit may differ from a refinancing mortgage interest rate, where the borrower is taking out a loan on the same property. Be sure to research different lenders and keep an eye on your credit score to find the best mortgage interest rate available.
Fixed Mortgage Interest Rates
A fixed mortgage interest rate is one in which the interest rate is predetermined based on your credit score and home mortgage lender. This interest rate will remain the same throughout the entire duration of your mortgage loan. A benefit to the fixed mortgage interest rate is that since the rate remains the same for each payment, you will be able to budget in your monthly payments without having to adjust based on the market’s fluctuation.
Although fixed mortgage interest rates may be higher than adjustable mortgage interest rates (rates that fluctuate with the market), your interest rate will remain the same, even if the market rate rises drastically. The most common terms for fixed mortgage interest rates are 15- and 30-year mortgage rates. These terms mean that you will need to pay off your mortgage loan at the preset mortgage rate within 15 or 30 years.
FHA Mortgage Interest Rates
A FHA mortgage interest rate, or a Federal Housing Administration rate, is a loan for those who may not have the best credit score. Although more home mortgage lenders require a specific credit score in order to be granted a mortgage loan.
You are able to be given this loan, even with not-so-great credit, because the risk from the lenders’ view is removed. The government provides loan insurance, removing the risk of the borrower who has poor credit. Instead of basing the interest rate on the borrower’s credit score, the primary factor determining the interest rate is the nation’s current inflation rate. The interest rate for the FHA mortgage loan is typically cheaper than the interest rate of other loans.
Bad Credit Mortgage Interest Rates
A bad credit mortgage loan is primarily for those who have a poor credit score, typically less than a 600. For these individuals, this type of mortgage loan is the best for them since it allows them to still purchase a new home, even with poor credit. Although not all mortgage lenders offer a bad credit loan, there are many out there who will acknowledge that you are not a high risk if you have your finances in order and are trying to build a higher credit score.
The bad credit mortgage interest rate will be higher for borrowers than those taking out a mortgage loan with good credit. Since interest rates are calculated based on credit scores, a person with a poor financial history will be deemed a high risk than one with a good credit history, resulting in a higher interest rate.
An advantage of a bad credit mortgage loan lies in that you can use this loan to improve your credit score. By making payments in full and on time, you will be able to prove that you are a good borrower. This will help raise your credit score and help you acquire a good loan with a better interest rate in the chance that you need another loan later on down the road.
Commercial Mortgage Interest Rates
The commercial mortgage loan is secured by real estate used to generate income, such as through a business, instead of being used for a residence. These loans are for the purchase or refinance of a commercial property. The commercial mortgage interest rate can be complicated to factor since the loan is normally taken out by a business, not an individual.
The commercial mortgage interest rate is typically higher than most other mortgage loans. The interest rate is also fixed, so it does not fluctuate with the real estate market. Most loans’ interest rates are based on the credit score of the borrower; however, since the loan is being taken out by a company, the property is used for collateral. If the borrower fails to make the loans on time and in full, the lender holds the right to foreclose on the property.
The best mortgage interest rates are for those borrowers who have a good credit history. However, you should not worry if your credit is less than perfect since there are loan options available for you. Even though these loans may have a higher interest rate since your credit is lower, you will still be able to acquire a mortgage loan in order to purchase a property. If you aim to purchase a house in the upcoming years, be sure to work at improving your credit score and financial history. The higher the credit score, the lower the interest rate, and the better deal on a loan you will get.