Many people wonder about whether it’s better to get a fixed home mortgage or a variable rate home mortgage. Each has their place in lending, but it may require some math to configure which is the better option for your home mortgage.

Mortgage rates fluctuate rarely between really high and really low. Usually they’re in the 5%-8% range. The lower rates come about rarely and are a great time to refinance your home, buy a home or take out long term loans. The trouble is that fixed home mortgage rates aren’t as low as the base interest rate.

Fixed rate home mortgages take on higher interest rates the longer they are fixed. If you fix a rate for 3 years the interest rate will be lower than if you fix a rate for 10 years. Choosing a variable interest rate for a shorter period of time, and then locking in a lower rate later, may save thousands of dollars. The trick is to pay down as much of the mortgage as possible while the interest rates are low.

Many people choose to create a payment plan which configures long term interest rates at the rate they want to lock into. Even when the interest rate is lower, they monthly payments are the same. This helps pay down the mortgage sooner. For example, configure a $100,000, 20 year mortgage at 7% interest. The monthly payments work out to be $775.30. Configure the same mortgage at 3% interest and the payments become $554.60. But you would continue to pay the $775.30, allowing the extra money to go towards the principle and locking in the loan as soon as you get near the 7% interest rate.

Getting the lowest interest rate isn’t just a matter of applying at the right time. A fixed rate home loan can be higher or lower depending on your FICO score, income, length of time at your job and your debt to income ratio. Each of those plays a specific role in deciding your interest rate.

Your FICO score is a compilation of your past credit history, the amount of debt you have accumulated, the types of loans you have and the length of your credit history (how long you’ve had credit accounts). You can increase your score by closing out accounts with lower credit limits and high balances. Always keep credit card accounts with high limits but low balances.

Your debt to income ratio is the amount of debt you have monthly divided by your monthly income (gross). This ratio should work out to a 36% or lower percentage (ideally a 28%).

Getting the prime interest rate on a mortgage is essential. A fixed rate mortgage loan is a big investment. Twenty years of your life is invested into the home you’re paying off. It’s a good idea to fix your finances to get the best rate possible.

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