Interest Rates 101
Rumor has it interest rates are gonna keep rising. But you want to buy a house. Sigh. I feel ya. I’m talking to buyers every day about rates and the role they play in buying a home. And while no one has a crystal ball, it’s true that they’re inching upwards. That said, I wanted to share some basic info about interest and how it works so you can make the best decision given your situation this spring.
An interest rate is essentially the price you’ll pay to borrow money to purchase a home.
Interest rates are displayed as an annual percentage of the total amount borrowed, also known as the principal.
Here’s a straightforward example: Say you borrow $500, and the interest rate is 8%. At the end of the year, you’ll owe $540 ($500 x 0.08).
Lenders make money off the mortgage interest. In the example above, the lender would pocket the $40.
Lenders determine your interest rate using a variety of factors; however, the most important is your credit score. A credit score is a number that predicts how likely you are to pay back a loan on time—the higher your score, the lower your interest rate.
If you want to talk more, let me know. I’m here to help you navigate every part of buying a home!