Understanding and Optimizing Your Interest Rate to Secure Best Loan Terms
Your interest rate represents the additional amount of money that is added to the loan above the principal. This interest is how the lender makes a profit and is compensated for the risk they take on upon approving the loan.
Most mortgages offer interest rates starting as low as 4 percent. This means you’re charged 4 percent on any balance that is carried forward month to month. To see exactly how much interest you pay each month, you can refer to your payment schedule.
However, if you are considered a higher-risk borrower due to factors like poor credit history, you may face higher interest rates. It is not unusual to see rates go as high as 6 percent or more for home loans when the credit score is less stellar.
Improving your credit profile stands as one of the best strategies to qualify for the lowest interest rates available. Actions like paying off old debts, correcting inaccuracies on your credit report, and timely bill payments can significantly boost your credit score and minimize the rate at which you accumulate interest.
Related Terms: Principal Amount, Loan Term, APR, Creditworthiness, Amortization.
