Mortgage rates are the single most important aspect of any mortgage, and are determined by a huge array of factors, such as income, credit score and your location. There are various types of rates for the mortgages, including fixed rates, which don’t change over time, and the variable rates which change according to economic conditions. The 30 year fixed mortgage rate has pros and cons that make it suitable for some people and not for others. It is therefore prudent for any potential homeowner to weigh the advantages and disadvantages of such a type of mortgage rate before ent4ring into the loan agreement.
Benefits of a fixed interest rate
A fixed interest rate makes it easier for the person taking out the mortgage to plan ahead. This is because the premiums payable each month are static, meaning that they are more predictable to handle. This feature of this type of mortgage is especially beneficial for people who work with tight budgets and who consequently don’t have room for unpredictability. Other types of mortgages with variable rates are harder to work with, since you never know how much you are going to pay the following month. This can be a bit discouraging when the rate fluctuates upwards as one may find that they are unable to pay the mortgage. Similarly, the higher payment may interfere with their financial plans. The lack of rate fluctuation makes it simple to service the loan as overly complicated calculations are avoided. The fact that the repayment is spread out over a long period of time means that the monthly repayments are small and therefore affordable.
One other advantage of 30 year fixed mortgage rates is the fact that it can act as a hedge against inflation. This is because the interest rate is not tied down to other indices, so it doesn’t shift when the economy of the country changes. Apart from that, it’s possible to easily refinance the mortgage once the interest rates drop by a significant amount.
One of the disadvantages that make most people shy away from 30 year fixed mortgage rates is the fact that they are usually at a slightly higher interest rate compared to the variable rate mortgages. The fact that the interest rate is static also means that one doesn’t benefit when interest rates fall. However, one can still refinance the loan at new lower interest rates if they so wish. Another disadvantage of the 30 year fixed mortgage rate is that compared to shorter duration interest rates, such as 10 year fixed rates, the fixed mortgage rates are normally higher. This is because an individual is holding onto the bank’s money for a longer period of time (30 years), which can expose the bank to more risks, which they have to cover themselves against. The bank rewards quick repayment of loans by charging lower interests, since it means lower risk for the bank.
How to improve your interest rate
In order to lower the 30 year mortgage rates, there are several things that homeowners or prospective homeowners can do. First of all, if one has a current mortgage of this type they can refinance the loan to get lower interest rates. This is especially beneficial when national interest rates go down, since the mortgage rates are pegged to national interest rates, which in turn are governed by the general state of the economy. This basically means paying attention to national interest rates, and refinancing when the rates go down significantly.
One can also refinance to get a lower interest rate when credit scores improve. To improve one’s credit score in order to achieve this, there are several things that one can do. The main measures that can be taken include making prompt payments on your debts, and borrowing money responsibly.
Lowering a mortgage interest rate ensures that you pay the least amount on the mortgage. Therefore, it is wise to pay attention to these things and act on them accordingly. In the short term, the savings accrued from taking such measures as refinancing may seem trivial, but over time they do add up significantly. That said, one has to be careful when refinancing the mortgage to get a better rate. This is because refinancing involves what is known as closing costs. In order to get the most benefit out of lowering your interest rates through refinancing, you have to consider this cost. For example, if the closing cost for refinancing your mortgage is $3,000, it doesn’t make sense to go through with a refinance deal that will only save you around $3,000 or less through the lower interest.