A Guide To Mortgage Loan Rates

Basically, a mortgage is a loan that uses real estate as collateral. A mortgage loan rate, on the other hand, is the interest rate charged on a mortgage. Now, mortgages are classified into two types: the residential mortgage, and commercial mortgages. In the case of a residential mortgage, the property of the borrower with a self-occupied residential property is provided as collateral.

A commercial mortgage is a loan in which a real estate occupied by a borrower other than a residential property is provided as collateral to secure payment of the principal and interest, or just the interest. In the case of commercial mortgages, the collateral is usually a commercial building, an office, a store or other business real estate.

Commercial mortgages are usually made by businesses that require the money for working capital, purchasing new equipment, or maybe an expansion. Since a business can be formulated as a partner of a limited liability firm, the assessment of the business' creditworthiness by a financial institution is relatively more complex.

The residential mortgage loan rates differ from the commercial ones as the rates are usually higher for commercial mortgages and this is due to the risk associated with residential mortgages and the default percentage is lower compared to commercial mortgages.

Mortgages may also be classified as fixed rate mortgages and adjustable rate mortgages. Both fixed rate as well as adjustable rate mortgages can be obtained for residential and commercial mortgages. The initial interest rate of an adjustable rate mortgage is lower than the interest rate for a fixed rate mortgage.

The Federal Reserve Board primarily governs mortgage loan rates and if the board changes the interest rates, the mortgage lenders should then adjust their interest rates accordingly. They are also influenced by economic and market factors such as inflation.

Lower rates can also be availed if you just pay a 20% down payment or more of the loan amount but if you a 5% down payment or less of the loan amount, you may possibly only qualify for a higher interest loan.

Mortgage loan rates usually fall somewhere between 5 and 13%. Long term loans have slightly higher interest rates than the short term loans and the difference is usually below 1%. Loan rates also differ with mortgage loan types such as FHA loans, VA loans, commercial loans, home equity loans, home improvement loans, and bad credit/sub prime mortgage loans.

Article Source: http://www.find-investment-advice.com

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