Saving Money By Shopping Rates

Given the recent turmoil in the housing market there is a lot of uncertainty for both the potential home buyer and those who are considering a refinancing of their existing home. But assuming that you qualify for a new loan, you should try to ignore the hype and focus primarily on what home financing rate you can secure. You will need to decipher exactly what that rate means to you as you go forward as a home owner.

When you take a close look at home financing interest rates you will be given lots of numbers to try to make sense of. Initial quotes you will be given may not include the APR or annual percentage rate. Unlike the commonly publicized interest rate, the APR is a true indication of what you will pay over the life of the loan.

The APR includes all the fees that your lender charges you as part of the calculation of the interest that you will pay over the life of the loan. When comparing 30-year fixed rate loans of different lending institutions, for example, you need to compare the APR of each company to get a genuine idea of which loan is more attractive.

Home financing rates will also vary depending on the kind and length of loan that you ultimately get. The 30-year fixed rate loan is the most common and essentially means that the interest rate that you pay will never change and that you will pay off the loan in full by paying equal monthly payments over the course of 30 years.

A 15-year fixed rate loan follows the same pattern as the 30-year fixed rate loan, but is designed to be paid in full in half the time. The interest rate for the 15-year version is lower, but the monthly payments are considerably higher so as to achieve a more rapid loan pay off.

For an ARM or adjustable rate mortgage, home financing rates will generally be considerably lower than the above mentioned loans. A 5/1 ARM, for example, is a product that gives the borrower a fixed interest rate for the first five years of the loan and then becomes an adjustable rate after that.

What that means to the borrower is that after five years, the interest rate will depend on the prime lending rate at that time plus a certain pre-determined percentage. These loans are typically meant to be used for buyers who do not plan to keep their original loan for more than a few years.

There are many more kinds of loans to examine. But before you can get a true idea of what your home financing rate means to you, you need to first decide on the kind of loan you want and then compare that specific type of loan. Not all rates are created equal.

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