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Coming from Australia, mortgages seem to be much more simpler than in the USA. For example, if you have a fixed rate mortgate of 7%, that is what you pay for the period of the fixed rate. For a variable rate mortgage, you pay the currently set interest rate which is usually a few percentages above the federal mortgate rate (eg 9%) and this can change as the market changes. Most banks also charge a monthly 'account keeping' fee of around $8/month.
However, when I am looking at US mortgages, you have Fixed Rate and APR (variable) which I understand, but then you also have these 'points' such as 1% or 1.25% as an addition (?) to the base rate which I don't follow.
And also, can you get different interest rates depending on your FICO score? How does that work? For us, if it is advertised at 7%, you pay 7%.
Then when the Fed bank lowers the rates, I am reading that rates can actually go up? wtf?
Note Rate and APR are two different rates.
If you receive a loan, and pay fees for it, then there is an APR.
On a 30yr fixed mortgage the rate is 'fixed for 30yrs'.
There is not variable rate. If the rate is 6%, and you only paid 1 point on the whole loan, then your APR will be 6.0931%. The APR is used to show you the true cost of the loan, and it is NOT the rate that you will be paying monthly.
6% will be the rate you pay monthly.
ARMs on the other hand have a fixed rate for a certain period that may fluctuate after the fixed period.
If you see an advertised rate at 7% in the US, you will also see a disclaimer next to it. It will state that you will need a certain credit score, and it may come with fees, etc
Quote:
Originally Posted by Aussie_Bob
Coming from Australia, mortgages seem to be much more simpler than in the USA. For example, if you have a fixed rate mortgate of 7%, that is what you pay for the period of the fixed rate. For a variable rate mortgage, you pay the currently set interest rate which is usually a few percentages above the federal mortgate rate (eg 9%) and this can change as the market changes. Most banks also charge a monthly 'account keeping' fee of around $8/month.
However, when I am looking at US mortgages, you have Fixed Rate and APR (variable) which I understand, but then you also have these 'points' such as 1% or 1.25% as an addition (?) to the base rate which I don't follow.
And also, can you get different interest rates depending on your FICO score? How does that work? For us, if it is advertised at 7%, you pay 7%.
Then when the Fed bank lowers the rates, I am reading that rates can actually go up? wtf?
But what are the the points?
Why does one point = 6.0931%?
If you are paying 6% each month, where.when do you pay the remaining 0.0931%?
The "1 point" =1% of the loan amount and is a fee (closing cost) that is paid at closing. If you pay a point on a $200,000 loan, you will be paying a fee of $2,000 plus all the other closing costs. You will pay the 6% in interest for the term of the loan.
You could probably do the same loan and avoid paying the point all together, but your rate would probably be 6.25% instead of 6%.
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