A Guide To Mortgage Loan Rates
June 5, 2008
Basically, a mortgage is a loan that uses real estate as collateral. A mortgage loan rate, on the other hand, is the interest rate charged on a mortgage. Now, mortgages are classified into two types: the residential mortgage, and commercial mortgages. In the case of a residential mortgage, the property of the borrower with a self-occupied residential property is provided as collateral.
A commercial mortgage is a loan in which a real estate occupied by a borrower other than a residential property is provided as collateral to secure payment of the principal and interest, or just the interest. In the case of commercial mortgages, the collateral is usually a commercial building, an office, a store or other business real estate.
These mortgages are typically made by businesses that require the money for working capital, purchasing new equipment, or even an expansion. And because a business may be formulated as a partnership, or a limited liability firm, the assessment of creditworthiness of a business by a financial institution is 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 can be classified as fixed rate or adjustable rate mortgages. Both of these mortgages may be obtained for residential and commercial properties. The initial interest rate of an adjustable rate is actually lower compared to the 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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