How Are Interest Rates Calculated for Home Loans?
Term of Loan Interest rates are calculated for home loans based on the term or length of the mortgage. Typical terms for home loans are 10, 15 or 30 years. Other terms are also available, but less common. One less common term is the five-year balloon mortgage. The payments are figured as if you financed the loan for 30 years, making the monthly payments as small as possible. However, the balance is due in full after just five years. Most home buyers must refinance their home loan at the end of the five-year balloon mortgage. Home mortgage interest rates may be at least one-quarter to one-half of a percentage higher for a 30-year home loan compared to a 15-year home loan. Of course, the differences between the 15-year and 30-year interest rates increase as home lending rates rise. Fixed or Variable Buyers can choose between fixed and variable interest rates on home loans. Initially, the variable interest rates offered to home buyers are lower than the fixed rates offered, making variabl
