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An Introduction To Mortgage Loan Rates

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

Mortgage loan rates for a residential mortgage actually differ from the commercial mortgage, as rates are usually higher for the commercial ones. It is because the risk that is associated with residential mortgages, and the default percentage is lower, compared to commercial mortgages.

Mortgages can be classified as fixed rate or adjustable rate mortgages. Both of these mortgages may be obtained for residential and commercial properties. The initial interest rate of an adjustable rate is actually lower compared to the fixed rate mortgage.

Since mortgage loan rates are primarily governed by the Federal Reserve Board, and so if the board decides to change the interest rates, the mortgage lenders must adjust their interest rates accordingly. The rates are also influenced by many 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.

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

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