Definition of Mortgage Rate
What is a "mortgage rate"? What is the definition of the term "mortgage rate"?
A "mortgage rate" is the rate of interest that a lender charges to a borrower for a mortgage.
Mortgage rates can be set in different ways. For instance, with a fixed mortgage rate, the borrower will a fixed mortgage rate for the life of the mortgage term. If interest rates are currently low and you believe that they may rise in the coming years, locking yourself in with a fixed rate is probably a good idea.
A lender may calculate their fixed rates by charging some percentage over the prime rate. For instance, a lender may offer you a mortgage rate of Prime plus 1% for your current mortgage term.
There are also variable mortgage rates, and these will move up and down based on what the prime interest rate (interest rates that are charged by banks to their best customers) is. So, if you believe that interest rates stand a good chance of falling over the coming years, you may want to consider a variable interest rate mortgage.
The downside to the variable mortgage rate, of course, is that you could be in a world of hurt if interest rates spike. Ask the people who had mortgages in 1979, 1980 and 1981 how they feel about variable rate mortgages, as interest rates spiked during those years thanks to the various oil crises.
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