Understanding the lending process with regards to mortgage loans is a confusing and frustrating process. First the terminology is vast and second the interest rates and terms vary by lender. The terminology is probably the hardest to understand and the rates by far the hardest thing from which to choose. Lenders sometimes give “cheat sheets” out to buyers, but those are long and sometimes cause more confusion. To understand how to get the best mortgage rates, it’s important to know the underlying reasons behind an offered interest rate and loan amount.

When you’re buying a house, you already have a home in mind. However, and unfortunately, it’s not the home that decides your mortgage amount, rather it’s a compilation of your credit score, debt to income ratio, income and job and home history. A mortgage broker, or lender, calculates your loan based upon those factors. While you may think you qualify for a home loan of $200,000, a lender may not be willing to offer you that amount based upon your qualifications. What a broker must do is configure a loan that fits your needs as well as conforms to your monthly income and debt ratio, assuming you have perfect credit. If you have less than perfect credit, they must also consider that factor with regards to loan amount.

Credit is a fickle thing and even if you earn $10,000 a month, you might not qualify for the amount of loan you need because of simple debt to income ratio. Debt to income ratio is your monthly recurring debt (not your utilities etc, but your credit card/mortgage payments etc) divided by your gross monthly income. An unscrupulous lender/broker will try and get you into a mortgage loan that you think you qualify for, but ultimately will cause you more grief. A trustworthy broker will look at your debt to income ratio and configure a loan that won’t put you above 38% in that ratio.

10 YR Mortgage rates are some of the lowest interest rates possible, but they are usually the highest monthly cost. While they will ultimately save thousands, if not hundreds of thousands, of dollars, many people cannot afford the monthly payments required to amortize a 10 year mortgage loan.

While a 10 year mortgage rate isn’t the ideal for many loans, for refinancing, 10 yr mortgage interest rates are usually ideal. That’s if the mortgage loan is affordable, monthly. 10 yr fixed mortgage rates are higher than the variable, but the payments are fixed and more reliable. A variable rate loan means monthly payments, and interest rates, will go up or down depending on the prime rate, or whichever interest rate your lender uses.

Calculating the best 10 yr mortgage rate will involve a lot of different factors. Firstly, consider the interest rate, and factor in if it varies. It might be best to configure the maximum monthly payment you’re able to make and then configure a loan to fit your needs. While 10 year mortgage interest rates are lower, a 20 or 30 year loan may better fit your needs in the long run. You pay more in interest, but save the heartache of huge monthly payments.

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