Basics

• A mortgage lender seeks to provide funds for the purchase of homes. Lenders make the principal amount available and charge interest to the borrower in exchange for the use of that money. Real estate has long been considered a secure asset to lend money against, and real assets, such as land, have tended to appreciate in value over long cycles. Houses or structures that are developed on land add value initially, but they are depreciating assets. Their value declines as they age.
  
  

Features

• Mortgages allow a home buyer to borrow the majority of money required for a purchase with relatively small amounts of their own money involved. Typically, a home purchase is arranged with the buyer paying 20 percent of the price upfront. The remaining 80 percent is provided by a mortgage lender, such as a bank or other financial institution.
  
  

Considerations

• In addition to the price of the home, a borrower needs to evaluate the amount of interest---the mortgage rate---he or she will be paying on the borrowed amount. Several factors influence prevailing interest rates. A person with financial stability and strong credit may be offered a more attractive rate than one who is a higher credit risk. Down payments can also affect the mortgage rate; a lender feels more secure when more of the borrower's money is involved.
  
  

Types

• Aside from personal creditworthiness, rates are also based on the type of mortgage being implemented. Within the last few decades, lenders have structured loans with varying terms of principal reduction. Some accelerate principal repayment, while others delay or extend it. The borrower has many choices and needs to evaluate his circumstances to determine which is best.
  
  

Time Frame

• In the link below, mortgage rates are illustrated in a number of time frames. Some of the charts are short term in nature, and some data extend back to the early 1960s. The short-term trends depict minor adjustments in rates, and long-term data reflect periods in which rates were extremely high in the early 1980s due to poor economic conditions and inflation in the late 1970s.
  
  On balance, rates have typically averaged between 6 and 7 percent for a 30-year mortgage and have tended to move in tandem with the U.S. 10-year Treasury bond. For example, if the 10-year Treasury bond is at 4 percent, the market for 30-year conventional mortgages will usually be 1 to 2 percentage points above that.
  
  Knowing what level mortgage rates are at in relation to historical levels is useful in choosing whether or not to buy a home.