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Understanding Interest Rates

Interest rates are always on the move. Wall Street securities and other key economic indicators play a role in determining whether they move up or down. Understanding this relationship is important because the lower your interest rate, the more savings you’ll realize when it’s time to obtain a mortgage. So always know what’s currently going on with interest rates.

Understanding APR

APR stands for Annual Percentage Rate and contrary to what some homebuyers think it is not the interest rate. It is a calculation of all costs associated with your mortgage, including the interest rate, expresses as a yearly rate. Its purpose is to inform buyers of the true costs associated with doing business with a particular lender. Knowing the APR makes it easier for buyers to choose the most competitive offer. Lenders must disclose the APR when advertising rates otherwise they’re in violation of one of the main protections provided under the Federal Truth in Lending Act.

Taking Time to Prequalify

By taking this step, you won’t waste time shopping for houses that you can’t afford. Prequalifying is an optional step that involves meeting with one or more lenders to review your income and your liabilities in an effort to determine the maximum amount of a loan for which you qualify.

Rate Lock

If you’re quoted a favorable interest rate, consider locking in that rate. A rate lock is a guarantee from your lender to commit to a specific interest rate and number of points for a specific period of time, which typically coincides with the time it takes to process and approve your loan application. Also referred to as a lock in or a rate commitment, you may be required to pay for this type of guarantee, and the terms likely will not be negotiable should rates decrease, but doing so means there’s one less thing to worry about when buying a home.