The fixed interest rate on a mortgage loan is set for the term of the loan agreement and is not subject to revision. Along with floating, fixed rate determines the mechanism for the formation of the borrower’s expenses (and, accordingly, the bank’s income).
The advantage of a fixed interest rate on a mortgage loan for both the borrower and the lender is the predictability of the amount of interest payments. This makes it possible for the borrower to plan expenses and for the bank to plan income for the long term.
The flip side of the coin is the risks of changes in the key rate by the Bank of America due to changes in the economic and financial environment. A change in the key rate inevitably entails a change in interest rates on loans and affects the financial condition of the parties to the mortgage transaction. With a decrease in the key rate, the bank finds itself in a favorable situation, continuing to receive income at the previously established increased interest rate, and, accordingly, the borrower loses. When the key rate rises, the situation turns in the opposite direction.
Interest rate in the USA
Credit institutions offer the local population mortgages at 3.5 – 7% per annum. For foreigners, the rates will be higher in order to minimize the possible risks of non-repayment of debt and the return of the borrower to their homeland.
On average, a foreigner will be able to count on issuing a mortgage loan with an interest rate of at least 5% per annum. Some banks provide loans to foreign citizens at 8-9% per annum.
The final interest rate will be announced to a specific client after studying the submitted documents and the client’s solvency.
The largest bank in the country, Bank of America, lends to US citizens at 3.75 – 4.4% per year (the rate will depend on the type of interest (floating or fixed) and the loan term. For foreigners, this range will increase by about 2% to about 5.75 – 6.4%.
Terms for issuing a mortgage
The average size of mortgage loans for foreign citizens today is about $100,000 – $150,000. Everyone issues a loan in proportion to their income.
You will definitely need to pay the first installment, which is on average 40% of the cost of housing. Some banks ask for 30%, others ask for at least 50%. It all depends on the borrower himself, his creditworthiness and financial reputation.
As for the loan term, here the client can choose a suitable debt repayment period – from 15 to 30 years. Most borrowers are trying to issue a fixed-rate loan for the maximum period in order to reduce the amount of the monthly payment. Short terms are practically not common, as they reduce the income of banks.
A prerequisite for issuing a mortgage loan in America is the purchase of insurance against unforeseen situations and natural disasters, including fires, floods, explosions, etc.
Early repayment is permitted without any penalty.