Understanding Mortgage Interest Rates: How It Works?
Simply put, interest is charged as a percentage of the principal amount you borrow from the lender. You borrow the money in the form of a mortgage. The lower your interest rate, the lower the amount you pay over a stipulated period. The percentage charged is the mortgage interest rate. The lender sets the interest rate, but it can depend on the base interest the banks or financial institutions charge in your market or region. How Does Mortgage Interest Rate Work? If you have this question in mind, you must know that there are three significant mortgage interest rates , and their working prerequisites also differ. Fixed Rate It includes the set interest rate for the agreed number of years. Let’s say if your bank or mortgage lender agrees on a 5% interest rate, then you have to pay a similar amount every month. Anything may happen to the base interest rate in the market, whether it fluctuates or goes down, but you will continue paying the same lending amount. It helps borrowers to plan