In many circles home ownership is considered one of the greatest investments the average American individual will make in their lifetime. Homes are valuable for a variety of reasons. The most obvious reason a home is valuable is because it provides shelter. Homes provide a place of security and comfort. A place where precious memories can be created and the hope for the future can be harbored. Homes also have the incredible historic quality of holding their value monetary value, and in fact, homes have proven to appreciate in value instead of depreciate like so many tangible assets the average American possesses today. The last reason homes are so valuable is because the cost of a home is relatively very expensive. For most Americans, a home will be the most expensive thing they ever consider purchasing in their lifetime. Because homes are so expensive, over ninety percent of people who purchase a home will not have the money are capitol to pay in cash and therefore they will turn to a bank or another form of lender and borrow the money in the form of a mortgage.

Mortgages have different lengths and rules. Some mortgages are only fifteen years to pay back all the principle. Other mortgages take thirty years to pay back the principle on the loan. Some mortgages are a fixed interest rate for the entire length of the loan. Other mortgages will have it so that the interest rate is fluctuating with the market for interest rates. No matter what mortgage a home buyer goes with, they will repay the bank or lender in the form of interest. Interest is effectively what the borrower pays for the loan or the lender charges for giving up their money.

It is a simple economic principle that interest rates reflect the risk involved with giving up a loan. For example, when a investor lends money to the government, it is almost certain the that United States Government will pay back the money and so the interest rate they pay on the loan will be lower than almost any other form of investment. If a company is brand spanking new and they are not tried and true and their product is not yet shown to do well, then in order to get an investor to invest in the company, they will have to offer a really high interest ate compared to a United States T bill. The same goes for houses and home mortgage loans. A lender who invests in a borrower will need to get some assurance that the money will be re-payed to them in order for the lender to charge a lower interest rate for their trouble of lending the money. Some methods of getting assurance from their borrowers is a higher down payment. A higher down payment ensures the lender that the borrower is more invested in their home and will not easily walk away. When a lender is assured that there borrower will not just walk away from the loan, they feel less risk and will charge a lower interest rate. Lenders also look at how long a borrower plans to take to repay the loan as a form of risk. A fifteen year mortgage will take half as long to repay as a thirty year mortgage and so a lender will charge more on the thirty year mortgage.

Another form of lowering the interest rate is to actually pay the interest rate up front. When a borrower actually pays the interest up front, the transaction is called a interest point. An interest point is what it will take for the borrower to pay to pay off exactly one point of interest in the long run. For example, if a home costs$100,000 and the interest rate is 10%, one interest point will be $1,000 and will bring the monthly interest payment to 9%.

Author Bio: Juhlin Youlien is a qualified author dedicated to Gilbert AZ homes for sale and Chandler Arizona real estate. Juhlin also writes about Tempe AZ homes for sale and Fountain Hills AZ homes.

Category: Real Estate
Keywords: homes, real estate, buying a home, selling a home, realtor, realtors, loan, mortgage, foreclosure, s