Generally, people put much emphasis on home mortgage rates when shopping for a home loan. Without question, this number affects most aspects of your loan, but is not the only element you should look at during your search. In fact, not getting the lowest interest rate in town isn’t always a bad thing.
Important Mortgage Elements
Many factors beyond home mortgage rates comprise the desirability of a mortgage loan. While it’s true that your interest rate plays a role in driving these other factors, rate doesn’t have to be the end all, be all of your decision. Figuring out your idea of the perfect mortgage loan will help you determine the level of importance.
For instance, finding an affordable monthly payment you can count on over the loan term might be the driving force in your decision. Although home mortgage rates may be lower on an adjustable rate mortgage (ARM), this loan offers very little payment stability over the life of the loan because of the fluctuating interest rate. Instead, you may decide to pay a higher interest rate for a 30-year fixed mortgage to ensure your payment is the same month after month.
Value of Low Mortgage Rates
Low home mortgage rates have merit. There is little point to accepting the higher rate loan when all other loan features remain equal. Assuming you never refinance your loan and stay in the home until you pay off the mortgage, a lower interest rate equates to less money you’ll pay your lender. Even a relatively small difference between loan rates can still turn into tens of thousands of dollars in savings over the life of your mortgage.
In the early years of your mortgage, the majority of your payment goes towards interest, not the repayment of your principle balance. Low home mortgage rates don’t change this calculation, but they can result in lower monthly payments. On a $100,000 mortgage, the difference of as little as two percentage points in rate can save more than $100 per month.
Value of High Mortgage Rates
Even though you should strive to obtain the lowest interest rate available, it is not necessary to obsess over it. Your best rate may be a few points higher than the going rate if your income or credit does not meet the lender’s ideal standards, but you can benefit from this rate. Depending on your tax situation, you may be able to deduct the mortgage interest you pay on your income tax return. Higher home mortgage rates equal higher interest amounts to deduct. While paying high mortgage interest may not be a gift by any stretch of the imagination, it has the potential to lower your total tax bill.
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