Purchasing a home is (probably) the biggest financial purchase a person can make. And there’s lots of moving parts that can make it all confusing and a bit daunting — but it doesn’t have to be. With a little help, every homebuyer and owner can understand how mortgages work, how rates affect their buying power and how to navigate an ever-changing market.

What’s mortgage interest and how does it work?

Let’s start with an overview of how mortgages work. Typically, lenders finance a certain amount of the total purchase price for the home. How much they finance depends on the type of home loan you choose. In return, you agree to pay the purchase price back over a set period of time. Mortgage interest is the interest charged on the loan by the lender.

The interest rate on your mortgage is dependent on the type of loan and term length. Interest rates can change throughout the duration of your loan if you have an adjustable-rate mortgage or stay at a flat rate for the duration of the term with a fixed-rate mortgage.

Lower rates can result in lower monthly payments — allowing you to qualify for a higher maximum loan amount. This can change what you can afford to buy. It’s important to note that a lower rate shouldn’t be the only thing you’re on the hunt for. We’ll get to that later.

How do interest rates change? And why?

Rates change daily — sometimes multiple times a day. External economic factors play a big role, but so do you. Let’s break down each.

How you affect your mortgage interest rate

You do have some control in the interest rate you get for your home mortgage — mostly through financial wellbeing. Your down payment amount, credit score and loan type all affect the final interest rate you end up with. Keep these in mind and work closely with your lender to talk through these factors.

How outside factors affect your mortgage interest rate

Economic factors and government financial policies can also affect interest rates as a whole, not on an individual level.

The most important external factors affecting interest rates are:

Inflation
The rate of economic growth
The Federal Reserve monetary policy
The bond market

All reflect supply and demand in one way or another.

Do your research, stay on top of the news and reach out to a loan officer if you’d like to learn more.

Finding a mortgage that works for you

Let’s shift gears now that we have a basic understanding of mortgage interest and how it works.

Determining what you’re looking for

Before you start looking at rates and lenders, it's important to have an honest conversation with yourself. Think about what’s important to you as you begin the home buying process. Start by thinking about what you’re looking for in a mortgage. You don’t need to know everything — that’s where loan officers come in to help.

But it’s still important to think through your future plans and financial goals. Whether you want to pay off your home quicker or prefer to have a cheaper monthly payment. Maybe you’re already thinking about a bigger home down the line.

Whatever it may be, thinking through your wants and needs as a homeowner will help you find a mortgage and interest rate that works best for you.

Finding out what’s in your budget

Part of figuring out what you need goes back to finances. Knowing what you can afford will make the whole process easier — from determining what lending solution works best to starting the house hunt.

At nbkc, we have a wide selection of mortgage calculators to help you determine what you can afford as a prospective buyer. We recommend starting with an amortization calculator to determine the maximum amount you can afford.

Researching interest rates

Above all else, make sure to do your due diligence. Check with multiple lenders to get a feel for what mortgage rates are in general. Don’t just stop with the first place you check or after finding a rate that seems unbeatable.

There’s a lot more that goes into a mortgage beyond just rates. Of course, finding a lower rate is a huge boost to your purchasing power — but remain wary of the “too good to be true” interest rates out there. Plenty of lenders will give a lower interest rate but will charge fees in order to get that rate.

We also recommend taking a look at lending reviews. It can help you get a feel for how a lender rolls. This is a huge financial purchase people make, so they’re going to be honest about how their experience went. It’s important to choose a lender you feel comfortable with.

Researching rates when refinancing

Refinancing is all about math. Lots of number-crunching involved to find a lending solution that reduces the amount you pay. There are plenty of different ways to cut it — so we recommend getting in contact with a loan officer to talk through refinancing. Consider what you have left to pay, your current rate and how long the term is.

We also have refinancing calculators if you want to start by crunching the numbers yourself.

How nbkc helps you find the right rate

At nbkc, we take a consultative approach to lending. We start by asking what homebuyers and homeowners are wanting to do and why. By taking time to get to know you, we’ll end up with a mortgage and interest rate that works best for your wants and needs. We mean it when we say we want what’s best for you.

Our help doesn’t stop there, either. If you choose to partner with nbkc, we’ll be there every step of the way — from initial conversations to closing. Our team of experts have an average of 10+ years in the mortgage industry. And they’re always there to help — no matter the ask.

Ready to find a rate that works for you?

Mortgages and interest rates can be confusing to understand — but there's nothing wrong with that. We hope that you feel more confident looking for interest rates after reading this, however.

We just want you to know that it's important to do your research, reach out to multiple lenders and have honest conversations about your needs and what you can afford.