Conventional mortgages are those where the purchaser pays 20% down and borrows no more than 80% on a home. High ratio mortgages are those where the purchaser pays a lower downpayment and consequently borrows over 80% on their chosen home. As the risk of default is higher when it comes to high ratio mortgages, mortgage insurance is required. That insurance gives lenders to ability to “give” more freely and thus interest rates end up being lower. Homeowners who want to take advantage of a low rate with a high ratio mortgage should calculate the cost of insurance and see if it truly saves them any money.
Another element that will affect your rates is if you choose a fixed or variable rate mortgage. Traditionally, homeowners tend to pay less in interest in the long run with a variable rate mortgage. However, as the name suggests, variable rate mortgages fluctuate each month. With a fixed rate mortgage you know exactly what your monthly payment will be for the length of your mortgage term. In this case, low vs high mortgage rates are directly connected to risk and reward. For those who value stability, the higher rates of a fixed mortgage are absolutely worth the extra money. For those who want to save money over the length of their mortgage term, the chance of lower rates are worth the risk.
At the end of the day, the most important factor will be affordability. While the promise of big savings in the long run can be enticing, that won’t amount to anything if you can’t afford the monthly payments and initial downpayment right off the bat. Take a look at your budget and what you can realistically afford before jumping into a mortgage. That’s what the mortgage experts at Source Mortgage are here for! Our team can help you determine the best product for your lifestyle. Contact us today to get started!
Source was absolutely great to work with - went above and beyond to help us get everything done when buying our new home. Highly recommended!! Chad and Jenelle Richards Jan 09 2013
Chad and Jenelle Richards
Added January 23rd 2013
|V.R.M.||Prime-.65 or 2.35%|