Mortgages, Lenders and Interest Rates

Abstract

When purchasing a home, it is important to understand what mortgage rates are and how they will affect the purchase over the life of the loan. Buyers need to understand their where they are within their own personal finance abilities to ensure they choice the loan type, the correct years they intend to borrow money and what impact the time value of money has during the life of a loan. This document will review three lenders, the interests each lender offers and what TVM says about the borrower.

Mortgages, Lenders and Interest Rates

If anyone has purchased a home, they know all too well how stressful it can be but doing some necessary research before purchasing can help relieve some of that stress. Purchasing property is an expensive endeavor so making sure that the finances are straight and completely understood both personally and when choosing a bank is absolutely vital because once the contract is signed, there’s no looking back.

By researching multiple mortgage lenders, one can compare side by side who is offering the best interest rates for home mortgages. Be sure to compare the local bank with other competitors but remembering that mortgage loans do not only consist of interest rates but also include quoted rate, points and closing costs (Mortgage-X, 2010). Below is a list of three popular mortgage lenders and the current interest rates that each of them offers:

INTEREST RATES

15 YEAR 30 YEAR

LENDERS Nominal APR EAR Nominal APR EAR

Lending Tree 2.50% 2.72% 2.75% 3.25% 3.37% 3.42% (Lending Tree, 2012)

Quicken Loans 2.88% 3.31% 3.36% 3.50% 3.74% 3.82% (Quicken Loans, 2012)

AmeriSave 2.25% 2.60% 2.63% 2.75% 3.07% 3.11% (AmeriSave, 2012)

Clearly noted, AmeriSave currently has the lowest offered interest rates as it also offers the lowest EAR rate as well.

Nominal interest rates or stated rate is a general interest rate offered by a lender prior to taking into consideration inflation. “Depending on its application, an inflation and risk premium must be added to the real interest rate in order to obtain the nominal rate” (Investopedia, 2012). Additionally, this does not reflect how often interest payments are made. Nominal rates are considered very generic (Hagen, 2012).

An Annual Percentage Rate (APR) is the charge for borrowing money. “Expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. Simply stated, APR is an annual rate of interest without taking into account compound interest within the year. APR