Interest rates and your home loan
An interest rate is defined simply as cost of borrowing money. In lending, the money borrowed is referred to “principal” which you must pay back, alongside all the added costs of borrowing money. The Interest Rate is generally always expressed in a percentage form.
Are there different types of interest rates?
Yes, there are different types of Interest rates, such as:
- Fixed Interest rates – remains the same rate for the entire term of the loan or for part of the term.
- Variable Interest rates – fluctuates over time due to underlying benchmark or index change.
- Annual Percentage rates – also known as (APR) is the annual rate charged for borrowing or earned through an investment and this includes any fees or additional costs associated, however, does not take into account compounding.
Prime rates vs Non-Prime rates (Good Credit vs Bad Credit)
Having a good credit history means you will receive the best rates from the best lenders and banks, these rates are known as Prime Rates.
However, if you fall into the category of bad credit and having credit related issues you may not receive the best rates, also depending on how severe the credit issue is you will be looking into the direction of non-bank lenders and or specialist lenders, these rates are known as Non-Prime rates.
Having bad credit can affect the borrower with higher interest rates as the lender will not want to take a risk when lending to the borrower.
However, lenders will work with the borrower who have bad credit, although will require a larger deposit as it helps the lender lower their overall risk when lending as well as the house serves as collateral, which mean if the borrower doesn’t pay the lender can take the house.
To find out what products are available to you, give us a call or enquire online and one of our brokers will call you.