Mortgage Rate
Candlefocus EditorMortgage rates can be fixed or variable and there is usually an associated loan origination fee. Fixed rate mortgages require the borrower to make payments of the same size each month, regardless of changes in interest rates. Variable rate mortgages, on the other hand, allow borrowers to benefit from market fluctuations – when interest rates fall, the borrower's monthly payments decrease, and when interest rates rise, monthly payments increase.
The mortgage rate is typically determined by reference to an index like the prime rate or the 10-year Treasury bond yield. Prime rate is the rate of interest charged by a bank on loans to select customers. It is also used as the benchmark for setting the interest rate on many other loans. The 10-year Treasury bond yield is based on the 10-year bond issued by the U.S. Treasury and is widely used as a benchmark for determining mortgage rates.
Potential homebuyers should be sure to compare mortgage rates among various lenders in order to secure the best possible rate. This can be done by asking for a loan estimate from each lender. Borrowers should also take into account lender fees, points, and other closing costs. Understanding the terms of the loan and the associated costs will help ensure that borrowers make the best decision when selecting a mortgage.