June 22, 2018
If you are a first time home buyer you might wonder whether FHA home loan interest rates quoted to you at the appropriate time actually matter-after all, aren’t these rates subject to change depending on market forces and isn’t the borrower basically being offered the “going rate” no matter what?
The short answer is, interest rates DO matter and the rates you are offered are not necessarily the “going rate”, whatever that may be.
Why?
There are a few variables that affect the mortgage loan interest rate you are offered by the lender. Market forces are one of those variables.
Depending on breaking news, market activity, and even overseas financial developments, the rates offered at any given time may be different than the last time you checked the rates.
Another variable is the type of mortgage loan you are interested in. Interest rates on an FHA Adjustable Rate Mortgage, also known as an FHA ARM loan, may have a lower introductory rate than you might expect, with the understanding that there can/will be rate adjustments after that initial rate period expires.
Yet another variable is your credit score. Borrowers with good credit are offered more competitive rates than those with poor credit (but who still financially qualify). The better risk you are for the lender, the better the rates may be for you.
Rates matter when you are applying for an FHA mortgage loan because your long-term plans for the house and the loan will determine how much you pay over the lifetime of the mortgage.
Those who apply for an FHA Adjustable Rate Mortgage may be planning to sell or refinance the home before the rates are adjusted too many times. This can be a strategy to consider under the right conditions-but much can depend on the state of the market when you sell or refinance.
Some don’t like the uncertainty of that and choose a fixed rate mortgage loan instead.
If you choose a fixed rate mortgage with the goal of staying in the home for the lifetime of the loan, you will want to know how that interest rate will affect the cost of your home loan over the duration of the mortgage term.
Knowing such costs is an important part of being a fully informed borrower, which is one major reason why mortgage loan interest rates matter.
Getting a loan with a higher interest rate will cost more over the lifetime of the loan, and some who couldn’t get the most competitive rate on their new purchase loan will look at an interest rate reduction loan sometime in the future to help bring the costs of their loan down.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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