Online Mortgage Rate

The interest rate charged by online mortgage brokers and lenders shouldn’t be that different from what’s charged by other mortgage professionals.

Most mortgage professionals charge the same interest rate because the mortgage market is highly unified. The vast majority of mortgage interest rates are based on the standard rates posted everyday on a wide variety of mortgage and news websites. The online mortgage rate should be the same as these rates.

Although the interest rate shouldn’t be different online mortgages are often cheaper than traditional mortgages. This occurs because many online lenders eliminate commissions and other charges paid to mortgage brokers and other middlemen who arrange mortgages. There maybe less paperwork involved in online mortgage another factor that can reduce costs. 

How Mortgage Interest Rates are Set

The vast majority of mortgage interest rates in the United States are based on the prime which is the interest rate the Federal Reserve charges banks for money. The Federal Reserve or fed is able to set this rate because it is the main source of money lent to banks. The mortgage interest rates published in newspapers and posted online are usually based on the prime.

Some other mortgage interest rates maybe based on other factors in the market. The rate at which mortgage based securities are trading on Wall Street and elsewhere can affect the mortgage interest rate. So can the overall economy and the markets overseas.

How Online Mortgage Rates Are Organized

Generally mortgage interest rates are based on the terms of the mortgage which determine how long it lasts. Longer lasting mortgages like 40 and 30 year mortgages usually have a slightly higher interest rate while shorter mortgages like 15 year mortgages have a slightly lower interest rate. This occurs because the shorter mortgages are more profitable to lenders so they try to encourage them with lower interest rates.

There are other factors that affect the online mortgage rate including the borrower. If a borrower is considered riskier by lenders they will charge a higher interest rate. Persons with bad credit ratings are considered a bigger risk so they pay a higher interest rate. Homebuyers who don’t put up a big down payment are also considered bigger risks and have to pay a higher rate.

The reverse is also true: buyers with good credit and those willing to make large down payments often get better rates. Individuals willing to purchase kinds of mortgages more profitable to banks may also get a better rate.

There are also Adjustable Rate Mortgages (ARMS) in which the bank has the ability to change the interest rate. Another variety of mortgage usually only available to commercial customers is the floating rate mortgage in which the mortgage rate is determined by the interest rate set by the market.

Get the Best Rate Possible

A mortgage buyer should always try to get the best interest rate possible which is usually the lowest interest rate. You should do this because the interest rate will determine how much your mortgage payment is. The mortgage payment is composed of a portion of the principal plus the interest rate plus whatever charges the lender tacks on.

The higher the interest rate the higher the mortgage payment. Paying close attention to the online mortgage rate will help you get the lowest mortgage payments possible.