Mortgage Rates: Classification and Basic Features

Everyone likes to get their mortgages on prime rates that is, the special rates at which banks deem fit to give loans to their customers who are most credit- worthy. To the novice, Mortgage is nothing but a conditional conveyance given by the customer to the banks as security for the repayment of the loans they get. The property which is given as mortgage is assessed as a collateral security and in case of non repayment of loans; it is duly confiscated by the lender. Classification of these rates is made basically on two distinct types. They are fixed rates and flexible rates.

The main benefit and the features of the fixed mortgage rates is that the rate of interest does not vary according to the different parameters calculated. They remain fixed throughout the loan period. A person who has availed loans on fixed rates need to pay the interest rate only on the basis of the previously calculated and notified rate.

And it is also a consolation to know that the increments come with only small rises of rates like for example, 12.5 % or 25%. The payments made for these interest rates are sometimes adjusted slightly up or down monthly or annually depending on some market index. These benefits make this type very much preferred by the customers.

The Flexible rates or the Adjustable Rate Mortgage is the second type of rate calculation. There are many parameters influencing this type of calculation. They are:

Assets: The value of the item owned by the person for example, cash, real estate properties, bonds, stocks, etc.

Gross income of the family is also a parameter. The total income of all the family members is calculated before deductions made on taxes and other expenses.

Liabilities also are a vital issue. If the person has an obligation to pay money to another for the purchase of goods or for services rendered, then this liability affects his mortgage rate. Similarly, his credit ratings have a direct affect on the AMR rates calculated.

It is a matter of concern that the interest rates are found to "adjust" or "float" in accordance or with the variations in all these parameters. There is no dispute to the fact that the credit scores is the main criteria or parameter calculated at most times by the banks. Good interest rates or prime rates are presented to those people who have very good credit scores. Lenders call for high interest rates from people who have lower scores as they fall on greater risk sector and these higher rates compensate for the increased risk.

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