How Expensive Mortgage Rates Can Be
Naiga Onyango
Buying a house is becoming expensive each day.As an asset, it is expected there value to ever appeciate. The cost is quite high and can be higher if you planning to use a mortgage. Taking the mortgage path its advantageous because the loan will help you pay. However, it has its own cost. There is the mortgage rate you will pay. This rate varies depending on a variety of factors which make the overall to balloon.
These include:
Maturity term. longer maturity calls for high interest rates. Default risk increases with maturity and ther issuer will require higher rates in return.
Credit quality of the borrower. Issuer has confidence in higher credit quality borrowers. Therefore higher interest rates will be charged on borrowers whose credit quality is ranked low because they have a higher default risk.
Deposit amount. High deposit shows the ability of the borrower to service the remaining amount. It gives some security that the debt will be repaid.
Quality of the collateral. Incase the borrower defaults, the lender can sale the collateral and pay themselves. High quality collateral is required to be sure there money will be recovered in the sale of the collateral hence lower rates. In the other hand, the recovery rate in low quality is low therefore lenders will charge higher rates due to higher expected loss.
These are few among the many. But this shouldn't discourage you rather encouraging you to take a mortgage while you know what is expected of you.
