FHA Loan Rates
The Federal Housing Administration insures both fixed and adjustable-rate mortgages (ARMs). A fixed-rate mortgage is generally going to offer the most consistency for a buyer, meaning their payment won't fluctuate much over time. This makes it easy to budget and ensure healthy cash flow over the course of the loan. These loans can come with higher upfront and monthly costs.
Adjustable-rate loans can be best for short-term buyers. Those who are comfortable refinancing into a fixed-rate loan before their rate starts to fluctuate may also benefit from an adjustable-rate mortgage. Still, ARM borrowers should keep in mind the risks of this approach. Mortgage rates change regularly, so the fixed rate they're offered in 5 years may be higher than the one they could secure today.
Fixed-rate mortgages come with a set interest rate that remains unchanged through the entirety of the loan term. Fixed-rate loans typically have higher interest rates than ARMs, because they provide more protection for the homeowner over time.
An adjustable-rate mortgage, or ARM, has an interest rate that fluctuates over time. Typically, the starting rate is fixed for at least a few years. After a specified number of years (e.g. 3, 5 or 10 years), the rate is increased. The higher rate can result in a higher monthly mortgage payment for the homeowner.
All rate increases should be disclosed before the homebuyer closes on the FHA mortgage. It is common for these rate increases to outweigh the initial savings when compared to a fixed-rate mortgage.
FHA mortgage rates can be higher than conventional mortgage rates. However, the higher interest rate also comes with lower down payment requirements and lower credit requirements than conventional loans.
Yes. Some lenders offer better rates than others. However, the cost of an FHA mortgage includes more than just your interest rate as many lenders charge fees for their services. It's important to shop around, and compare FHA lenders.
Each lender must take into account numerous economic and market factors when setting their rates. Generally, these factors include:
To determine the specific rate they will offer a borrower (or set of borrowers), lenders consider data specific to that household. This can include credit score, loan-to-value ratio, total amount borrowed, type of loan and more.
There are two different rates that come with a mortgage loan: the interest rate and the APR, or Annual Percentage Rate. The interest rate simply reflects the cost you pay to borrow the money from your lender. The APR, on the other hand, includes additional fees and charges directly associated with the loan.
Your points, broker fees, and other charges are factored into the APR, giving you a more comprehensive view of what your mortgage costs you across a year. When applying for mortgage quotes, you'll notice that APRs are typically higher than your offered interest rates.
Paying discount points is a way to lower your interest rate (and subsequently your monthly mortgage payments). It's essentially a way of pre-paying your loan's interest up front. The cost of points varies by loan amount, with one point equaling 1 percent of the loan's initial balance.
Paying points can save buyers significantly on their interest, but only if they stay in the home long enough. Short-term buyers generally do not save — or may even lose money — by paying points up front. To determine if paying points is smart in your case, try calculating the break-even point: [Points Cost] / [Monthly Payment Savings] = [Months Until Break-even]. If you plan to stay in the home at least that long, then paying points up front can be a money-saving move.
Since FHA mortgage rates fluctuate often, it's not uncommon for the rate you're quoted to change by the time you close on the home. A rate lock prevents this by freezing the interest rate you've been offered for a set period of time, so you can find a home and close on the property.
Rate lock-in offers vary by lender, but they generally come in 30-, 45-, 60- or even 90-day periods. This number represents how long your rate is locked in and guaranteed. Some lenders offer free rate locks, while others charge a fee. Fees are generally higher the longer the rate lock period lasts.
It's usually best not to lock your rate until you've found a property (and, ideally, your offer has been accepted). If you lock too early and are unable to close on your home, you may have to pay expensive extension fees or, worse, re-apply for the loan altogether.
