As you probably already know, mortgage rate refers to the rate of interest your mortgage lender charges on your loan. A mortgage term is the length of time where the details and parameters of the mortgage are in effect. Terms usually last just a few years and are renewed once they are over.
Since mortgage terms are quite short in comparison to the overall amortization period of a mortgage, and mortgage rates tend to fluctuate, borrowers like to know there is some sort of guarantee in place to help them out. It helps create a sense of control so you don’t feel completely at the mercy of the market.
Fixed vs. Variable
Choosing which type of mortgage rate you want for your term is one of the first things you must do. In other words, do you want a fixed rate or a variable rate? With a fixed mortgage rate, you’ll agree to pay a certain rate of interest for the duration of your term, regardless of what the prime rate is doing out in the real world
If you choose a variable rate, your mortgage rate will fluctuate right along with the prime rate. Some people choose this option if they forecast a dip in mortgage rates during their term, but many prefer the security of a fixed rate.
One type of mortgage rate guarantee that lenders may offer challenges you to shop around and look for a lower one. If you’re able to find one, they will beat it or give you some sort of cash bonus. Usually, you will have to sign on for a mortgage with that lender and then you can start looking for a lower rate. You’ll have a time limit and other parameters to follow, but the guarantee will be in place.
Closing Date Guarantees
Another type of mortgage rate guarantee centers on your closing date and a fixed rate. In this scenario, if you sign on for a certain mortgage rate and the rates go up before your deal closes, you’ll still get the lower rate for your fixed mortgage. The time frame for closing date mortgage rate guarantees may vary, but 120 days is a common number.
Some lenders will also offer mortgage rate renewal guarantees. This means, when the time comes to renew your mortgage term, the lender will guarantee your rate for a specified amount of time before the actual renewal date.
These options and tactics are designed to keep you with the same lender, so you don’t wander and stray to someone else with better choices. The mortgage industry is a competitive one, and adding a guarantee onto various parts of the process is a good way to keep your costs down and keep you loyal.
If you’re at the beginning of the process and haven’t found a lender yet, you may want to consider trying a mortgage broker to help you out. Mortgage brokers have access to a wide range of lenders and often have an easier time finding the deal you want.
I am Eric Jones, a businessman by profession. Business and entrepreneurship are my passion and I love researching on the various aspects of those areas. I make sure that I don’t miss out any updates and for this reason I read quite a lot. Law is yet another area which I am passionate to know more about.