If you’ve decided to purchase a new home, congratulations! Whether it’s your first home or a second or third, homeownership is always an exciting new adventure to embark on. However, before you commit to the process, it’s always a good idea to look up and compare current mortgage rates. Oregon lenders can offer a wide variety of mortgage plans and rates, so it’s prudent to understand what these rates are—and more importantly, what all these strange and sometimes confusing numbers can mean.
Let’s look at why it’s important to compare current mortgage rates in Oregon and how you can do it.
Why You Should Care About Current Mortgage Rates
To put it simply: mortgage rates determine how much, in real dollar value, you’ll ultimately pay for your home. At the end of the day, a mortgage is simply a type of loan, and as with any loan, there are three different factors that affect the final price:
#1: The Principal
This is the amount of money that you start off owing. In other words, it’s the price of your home. If the price of a house you’re buying is $200,000 and you borrow this money from a bank, credit union, or other lending institution, then the principal on your loan is $200,000.
#2: The Repayment Period
This is the length of time you have to repay your loan in full. You and your lending institution will agree on the repayment period before the mortgage is signed. Common loan terms are 10-, 20-, and 30-year periods.
Shorter repayment periods result in higher monthly payments. For instance, imagine you were just paying off the principal alone. Over the 120 months of a 10-year term, your monthly payment on a $200,000 principal would be about $1,667 every month. For a 30-year term, however, your monthly payment would be just around $550.
If your first thought is along the lines of, “Wow, I’ll take the longer payment period every time,” you aren’t alone. Longer repayment periods are more popular than shorter ones for precisely this reason. However, it isn’t quite this simple. You aren’t just repaying the principal; you’re also paying interest. And that’s where the rates come in.
#3: The Interest Rates
This represents how much, over time, you’ll owe on your loan. One common misconception is that the interest rate is simply calculated based on the principal itself. For instance, if your interest rate is 5% on your loan of $200,000, you might think to yourself, “Five percent of $200,000 is $10,000, so at the end of the day I’ll owe $210,000 in total.”
However, this isn’t the case. Interest on a mortgage is compound interest, which means it grows and builds on itself over time. There’s a reason Albert Einstein once called compound interest the most powerful force in the universe.
The math can feel very complicated so we recommend using a mortgage calculator tool like this one to quickly understand how much you’ll owe when all is said and done. By using this tool, we can see that with a principal of $200,000 and an interest rate of 3.5% (around the common median), on a 30-year mortgage, you’d owe $898 every month for a total of $323,280. On a 20-year mortgage, you’d owe $1,160 a month for a total of $278,400. On a 10-year mortgage, you’d owe just $237,360 in the end, but your monthly payments would be around $1,978.
That’s quite a difference. As you can see, the longer the repayment period, even with the same rate and the same principal, you can wind up owing nearly $100,000 more just based on interest alone. However, your monthly payments would be less than half that of the 10-year repayment period.
For this reason, it’s very important that before you look into financing a home purchase, you look up current mortgage rates in Oregon or your own home state.
Fixed-Rate vs. Adjustable Rate Mortgages
Another key distinction in the world of mortgages is if your mortgage is fixed-rate or adjustable-rate.
Fixed-rate mortgages are mortgages where your rate is set in stone from the beginning. Like our example above, you know from the moment you sign the papers that the rate will be 3.5%, and it will be 3.5% in 30 years when you make your final payment.
Adjustable-rate mortgages, however, are different. The first few years in an adjustable-rate mortgage will be fixed, typically at a lower rate than a comparable fixed-rate mortgage, but then the interest rate will start to fluctuate. These mortgages will typically be pegged to a certain index, like the London Inter-Bank Offered Rate (LIBOR) or the Federal Prime Rate.
This can be good—you may owe less money if rates stay low for prolonged periods of time. But rates can also go up, and it may make things more difficult in terms of long-term financial planning.
Time to Compare Rates
So, now that you understand how mortgage rates work, how can you compare current mortgage rates? Oregon homeowners have a few options here:
- Ask. This is how they used to do things before the internet, after all. If all else fails, you can call up various lending institutions and simply ask them what rates they’re offering. The upside to this is that you can often get information that’s highly specific to you and your location, and you can be confident that it’s accurate.
The downside, however, is that this is more work, and depending on how long it takes, the information may become out of date—and thus harder to compare.
- Use an online tool to compare current mortgage rates. The good news is that there are many online options to instantly compare rates and see what the average is. One great tool we like is NerdWallet, which lets you search by interest rate, total cost, and more. Other powerful solutions include Bankrate and SmartAsset, so we recommend you browse these tools and try them out to see which is best for you.
Curious as to how our rates compare? Contact Central Willamette Credit Union today.