3 8 As a Percent of Home Mortgage Refinancing Cost
If you’re in the market for a home loan, you’ve probably been offered the 3 8 as a percent rule. This is the rule of thumb that most loan officers use to calculate the interest rate they’ll charge on your loan. It sounds good. The lender knows how much risk he’s taking by asking for a 3 8 as a percent interest rate on your loan, and so he figures he’s going to charge a little bit more than that to compensate for his risk.
Doesn’t it seem odd that a lender would base a part of its mortgage decision on such a crazy percentage? The fact of the matter is that it’s not strange at all. It happens all the time. Almost all mortgage lenders ask for the 3 8 as a percent figure for figuring out your interest rate. State tax collectors use it to collect your tax when you pay it down through amortization. This helps calculate the amount you’ll have to pay back to repay the loan.
This isn’t some sort of market trickery. Lenders use these numbers because they’re standard. The loan does not even require you to be in the state where you plan to buy a home.
The lender will look at the 3 8 as a percent figure to determine the amount of interest you’ll have to pay for the loan. So if you borrow $1000, you’ll pay that same interest rate the whole time. In many ways, it’s a nice benefit to the loan holder.
The problem is that the loan holders typically only make money off of a small portion of the loan. Even if they get a large lump sum, most of their income comes from interest. Those who own the money giving the loans only profit when a few people sign up. Bad credit history makes it difficult to get a loan from them. Here is the place where the 2nd element is in play.
A lot of people who don’t fully understand what they’re getting into end up taking out loans they can’t afford. A variety of factors play into the decision of whether or not you can manage to make your monthly payments. The biggest thing to focus on is how much of your income can go towards paying off your loan principal.
If you earn a decent income and have a good credit score, you shouldn’t have problems meeting your monthly obligations. But, it’s crucial to know that this percentage may alter at any moment. Once you’ve determined that you cannot afford your payments, you must look at other options.
There are many different options available when it comes to getting the best deal. Refinancing a mortgage is one of the most common mistakes people make. If you do this, you’ll get a lower interest rate on your loan, but you’ll also have a longer payment period. Consider all your options and find out which will offer you the best deal and allow you to afford your mortgage payments.
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