First-Time Homebuyer? Don't Be Overwhelmed. Here Is Your Mortgage Interest Explained
November 7, 2019

Buying a home can be a lot to take in—especially if you’re a first-time homebuyer. There is a whole glossary of terms that you’ll come across when you’re buying your first home. Things like escrow, down payment, principal, and much more. One of the most important things to consider though is mortgage interest. You might hear your realtor explain that you should wait to apply for your mortgage because interest rates are dropping, or that you need to get your rate locked in. But what does this all mean? Read on to have the most frequently asked questions about mortgage interest explained!
What Is Mortgage Interest?
When you take out a loan, you don’t only pay back the amount that you borrowed. If you take out a $100,000 mortgage, you will pay back more than $100,000 over the life of the loan. When a lender gives out money, they do so with the hopes of making more than they lent out. In order to make the loan profitable, they add interest to the loan. This interest is a percentage of the loan amount that is added to your monthly payments.
What Factors Affect Interest Rate?
The interest on a mortgage is determined by a wide variety of factors. The average interest rate is in flux all the time and is largely affected by the eagerness of investors to purchase mortgages from lenders. The interest rate of your specific mortgage may be higher or lower than the average depending on your financial situation. The interest rate offered to you will change depending on a number of factors, such as: • your credit score • the amount of your down payment • your debt-income ratio • the location of the property • assets • type of loan And more. Your mortgage officer will be able to help prepare your finances for the best interest rate possible for your situation.
Fixed-Rate vs. Adjustable-Rate
When discussing interest rates, there are two important terms to know: fixed-rate and adjustable-rate. Fixed-rate mortgages establish an interest rate at the origination of the loan. That interest rate stays the same through the life of the loan. In most fixed-rate mortgages, the total amount of the interest is added to the total loan amount. Even if you pay your mortgage off early, the total amount stays the same. In an adjustable-rate mortgage, the interest rate fluctuates with the market. This can be a great option if mortgage rates are high when you buy your house. If interest rates drop, so does your monthly payment. However, that’s true for if they rise too.
What Is Escrow?
When you pay your mortgage, you might notice that your payment is broken up into three categories: principal, interest, and escrow. In addition to your mortgage, you also have to pay for things like property taxes and home insurance. Instead of paying these things yourself, many mortgage lenders will add those fees into your monthly mortgage payment. That money is then put into an escrow account, which the lender holds. When those fees are due, the mortgage holder pays it for you.
Your Questions About Mortgage Interest Explained
Buying your first house brings a whole mess of confusing financial terms that you’ve probably never heard before. But with the help of our preferred lender Patriot Mortgage and our knowledgeable team of sales agents you can sort through it without issue. If you’re looking for your forever home in the El Paso area, contact us at Tropicana Homes. See all of our beautiful floorplans and amazing model homes, and make your dream home a reality!

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