Everything You Wanted to Know About Margin Rates
When working out the particulars for your mortgage loan, you want to ensure that you get the best deal possible. If you know the basic ins and outs of the mortgage process, you can make more informed decisions based on the available information. One key term that you should know is margins. The margin will determine factors like how much your monthly payment will be and how much profit your lender will see on the loan. But what exactly is a margin, and how can you use it to your advantage?
What is a Margin?
In terms of your mortgage, margin refers to a fixed percentage point predetermined by your lender and added to the index to figure out the interest rate. The mortgage margin is the difference between the index and the interest rate charged for that particular loan. The lender’s margin remains a fixed point over the loan’s lifetime, as the margin determines how much profit they will make during that lifetime. If you settle on working with an Adjustable-Rate Mortgage, knowing the margin used to calculate the total cost of the loan will help you plan out how you pay back the loan.
How Does A Lower Margin Help Me?
Having a lower margin means you have lower monthly payments. As the overall interest rate will fluctuate throughout the loan, the margin rate stays constant. If you apply for a loan while the margin is on the lower end of the scale, your payments on your permanent, summer, or winter home mortgage will be more favorable. You can negotiate the margin with your lender to find common ground where everyone is satisfied with the loan terms. Generally, the better your credit score and history, the more favorable the margin rate you will receive from your lender.
Credit Scores and Margins
Your credit score directly impacts how low of a margin you can receive on a loan. Your lender will take your past credit history into account when determining what to rate to offer you during the negotiation process. Negotiating the margin rate presents a difficult challenge, but one that can prove beneficial to both sides.
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