Davis County Realtors

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    Davis County Realtors
    105 E. Locust
    Bloomfield, IA 52537
    Phone: 641.664.2224
    Fax: 641.664.3520

    Licensed in the state of Iowa

    Archives: November 2019

    • Mortgage Rates

      November 7, 2019

      How Interest Rates Work on a Mortgage

      by Joy Toltzis Makon Buying a home with a mortgage is probably the largest financial transaction you will enter into. Typically, a bank or mortgage lender will finance 80% of the price of the home, and you agree to pay it back—with interest—over a specific period. As you are comparing lenders, mortgage rates and options, it’s helpful to understand how interest accrues each month and is paid.

      Mortgage Payment Calculation

      Simply put, every month you pay back a portion of the principal (the amount you’ve borrowed) plus the interest accrued for the month. Your lender will use an amortization formula to create a payment schedule that breaks down each payment into paying off principal and interest. The length, or life, of your loan, also determines how much you’ll pay each month. Fully amortizing payment refers to a periodic loan payment where, if the borrower makes payments according to the loan's amortization schedule, the loan is fully paid off by the end of its set term. If the loan is a fixed-rate loan, each fully amortizing payment is an equal dollar amount. If the loan is an adjustable-rate loan, the fully amortizing payment changes as the interest rate on the loan changes. Stretching out payments over more years (up to 30) will generally result in lower monthly payments. The longer you take to pay off your mortgage, the higher the overall purchase cost for your home will be because you’ll be paying interest for a longer period.

      Conventional Fixed Rate Mortgages

      A conventional loan provides opportunities for financing loan amounts that are within the conforming limits set by Fannie Mae and Freddie Mac. With a fixed-rate mortgage, you have predictability and peace of mind with the same principal and interest payments for the life of the loan because the interest rate never changes.

      Product Rate APR Payment
      10 Year Fixed 3.250% 3.442% $1563.51
      15 Year Fixed 3.375% 3.508% $1134.02
      20 Year Fixed 3.875% 3.983% $959.07
      30 Year Fixed 4.000% 4.078% $763.87
      Read More