Top 3 Interest Rate Questions
Whether you're buying your first home, moving to a new one or simply refinancing, interest rates play a key role. They can impact everything from which mortgage is right for you to how much home you can afford.
First National Bank answers three of the most-asked questions about mortgage interest rates:
Q. How are interest rates determined?
A. The interest rate set for your mortgage is based on multiple factors, including:
>> Market indicators, such as inflation, unemployment rates, the stock market and the general health of the economy. For instance, if inflation rises, interest rates also tend to increase.
>> Supply and demand. When demand for home loans is high, interest rates may be higher, and vice versa.
>> Your down payment. A larger down payment may help you qualify for a lower rate.
>> Your credit history and credit score. In general, credit scores of 740 and higher get the best rates.
Q. Should I lock in my interest rate?
A. Once you've contracted on a home and your lender has shown you which mortgage you qualify for, you can often lock in the current interest rate through your closing date. This can give you peace of mind, since you know your loan won't be impacted if rates rise and you'll know your mortgage payment up front. Locking in a rate makes the most sense if you believe rates might rise before you close.
Q. What are discount points?
A. Discount points are basically prepaid interest on your mortgage. Paying discount points allows you to lower the interest rate on your loan, usually by 0.125 percent per point. One point costs 1 percent of your loan amount, and you can usually choose to pay from zero to four points.
Example: One point on a $200,000 mortgage at a rate of 4.5 percent would cost you $2,000 and may lower your mortgage rate as low as 4 percent. You pay for points at closing, and the cost is typically tax deductible. If you need to minimize closing costs, you may not want to pay for discount points. But if you want to reduce your monthly payment, paying points can help.
To learn more, visit www.firstnational.com
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