I don’t understand mortgage rates…

 If you don’t understand mortgage rates, do not despair.  You are probably just one of many, many people who don’t understand them either and are terrified that their lack of comprehension is going to mean them taking on a mortgage that they simply can’t handle.  The fact is that mortgage rates are relatively easy to understand and you can easily work out which one is the best for you.

Mortgage rates can vary hugely, but it is necessary to understand why.  These rates are what determine how much money you will pay back to the bank on top of the amount you borrowed in the first place.  After all, the bank isn’t going to loan you money out of the goodness of its heart.  No, it wants paying for this service, and mortgage rates are how it gets paid.  Low mortgage rates allow you to pay back more of the capital, or the amount you actually borrowed in the first place and these rates are usually available to people the bank considers low risk, i.e. people with steady jobs who aren’t going to run out of money and not be able to pay the bank each month.


Low mortgage rates are also often available to first time buyers, those who do not have another property from which they can get money to put towards this property.  This is because the government often wants to encourage people to buy their own property and low mortgage rates make it easier for them to do this.  Another thing that can get you low mortgage rates is the amount of time you are willing to spend paying off your mortgage, called the term of your mortgage.  If you are willing to pay back your mortgage over the next twenty five years, rather than ten or fifteen years, then the bank is often willing to offer you lower mortgage rates.
A high mortgage rate is often applied to people that the bank considers a high risk.  For instance, people without a steady job, or who aren’t able to put down a large deposit in the first place are often considered high risk.  These people may not be able to always pay their monthly payments so they are offered higher mortgage rates than the rest of us.  You might wonder why the bank lends to them at all, and the answer, as always, is money.  These people may not be able to keep up with their payment, in which case the bank forecloses on their property and sells it in order to get their money back.  And if those people can make the payments, the bank will make more money from them than from anyone else.  In the end, the bank will get its money back, and much more.
There are a wide variety of types of mortgage rates, but you should never lose sight of the fact that the bank is not lending you money out of a desire to do good in the world – they just want your money in return.  Therefore it is very important to look very carefully at mortgage rates before committing yourself.