When you make your monthly house payment which repays your mortgage loan, interest will be the biggest part of that payment. Interest rates make a huge difference in the size of your house payment. Look at the table below:
5% interest on $200,000 mortgage over 30 years: principal/interest payment $1074.
6% interest on $200,000 mortgage over 30 years: principal/interest payment $1200.
7% interest on $200,000 mortgage over 30 years: principal/interest payment $1278.
So it’s important to qualify for the best interest rates. Most home buyers don’t know that when you apply for a mortgage, you may not be receiving the best interest rate on your loan. If your credit isn’t good, the bank will penalize you and quote you a higher rate for your mortgage.
If you are borrowing money for a mortgage and you don’t have 20% towards the down payment, you will also be paying for insurance on the loan called mortgage insurance. Your mortgage insurance rate is a percentage of the loan amount divided by the 12 monthly house payments. It is added into the house payment. If your credit is poor, the mortgage insurer will charge you a higher rate as well. Higher interest and higher insurance rates will mean a higher house payment. It’s worth your while to repair your credit and make sure you qualify for the best mortgage.
For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs. “Simple answers to home ownership questions”.