MORTGAGE RATES » Home Mortgage Loan News

Are you thinking about buying a home? Now is certainly a good time to do it, what with home values in free-fall all over the country. Foreclosures abound, in both high-end neighborhoods and otherwise, and there are definitely a lot of deals out there. If there were ever a true buyer's market, this is it. When you do decide to buy a new home, you're going to need a mortgage (that is to say, unless you have a cool couple of hundred thousand dollars lying around), and there is a very good chance that the bank (or credit union, or other lending institution) is going to charge you an interest rate that is influenced by the prime. The prime rate is one of the most important and best-known indexes used by financial institutions to set interest rates.

The prime rate, also known as the prime lending rate, is based on the federal funds rate. The federal funds rate is the rate that banks charge each other for borrowing money. Why do banks borrow money from each other? Because they are required to keep a balance with the Federal Reserve, and if they are short they borrow from each other. The interest they charge on each other's loans is set by the Federal Reserve Board. So, this is what the prime rate is based on. The best-known prime rate index is the Wall Street Journal Prime Rate, published in that famous paper. When the prime rate goes up or do, so could your interest, if you have an adjustable rate mortgage. If you have a fixed-rate mortgage, the rates you can choose from at the time of your loan will be influenced by the prime rate.

To learn more about the prime rate, the Wall Street Journal Prime Rate, adjustable rate mortgages, fixed rate mortgages, and any other aspect of the home loan industry, be sure look for more articles on Go Banking Rates and also speak with a mortgage professional.

The adjustable rate mortgage, more commonly referred to as an ARM, is one of the most popular kinds of mortgages available in the United States. Home buyers who take out an ARM get the benefit of lowered monthly payments when index rates fall. When that happens, borrowers of adjustable rate mortgages rejoice at all the money they save. However, the downside to an ARM is that when interest rates rise, so do your monthly mortgage payments. That can really hurt, of course. However, people who have an ARM can take heart with the fact that there are interest rate caps in place that prevent your interest rate from going as high as it wants.

There are two kinds of interest rate caps on an adjustable rate mortgage, periodic adjustment caps and lifetime adjustment caps. If your adjustable rate mortgage has a periodic adjustment cap then the interest you pay on your mortgage loan is limited in how much it can go up from one adjustment period to the next. Let's say that you have an ARM, and interest rates rise dramatically. You could be looking at much, much higher monthly payments if the interest rate you pay rises along with the interest rate as indicated by the indexes to which your adjustable rate mortgage is linked. With a periodic adjustment cap in place, however, the interest rate rise can only go so high, as determined by the cap. A lifetime adjustment cap is the limit which the interest rate can rise over the time-frame of the loan whatever it might be. Additionally, all ARMs have a total, overall ceiling or cap on interest rates.

Before you take out an adjustable rate mortgage, be sure to go over all your loan options with a lending professional. He or she will walk you through all your many choices, and explain to you such things as interest rate caps, periodic adjustment caps, and lifetime adjustment caps.

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