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When you buy a Los Angeles County home, you’ll need a mortgage unless you’re paying the full price in cash. A mortgage breaks the total cost of your purchase into smaller monthly payments over the life of the loan. At the beginning of your term, the amounts consist primarily of interest with some principal. Toward the end, the ratio reverses with more of the total going to the principal with some interest. Even a fractional change in the rates can affect what you owe each month.

According to Bankrate, interest rates are holding steady at an affordable level. However, because of an improving economy, the Federal Reserve may increase rates in September during the next meeting of central bank policymakers. For now, these are the current rates as compiled by Bankrate in Los Angeles, assuming a loan amount of $450,000, a 20 percent down payment, no points, and a credit score of 740 or greater. Your actual payments will vary.

Fixed

Fixed-rate loans use a constant interest rate throughout the entire mortgage term. Their predictability is the primary advantage. You know what your monthly payments are going to be for the entire time that you own your home, which makes budgeting easy. The disadvantage is that interest rates on these loans are generally higher. Term lengths vary for such loans but the following are the most common:

• 30 years: The APR, or Annual Percentage Rate, for these mortgages currently range from 4.00 to 4.14 percent, compared to a national average of 4.09 percent. The APR folds the points and other fees into the amount of the loan, so you can more accurately compare loans from different companies. Estimated monthly payments go from $2,148 to $2,178.
• 15 years: APR runs from 2.99 to 3.67 percent compared to a national average of 3.27 percent. Although the interest rate is lower, the term is shorter, which makes for a higher monthly payment but a lower total when the mortgage is paid off. Monthly payments go from $2,760 to $2,880.

Adjustable

Adjustable-rate mortgages, or ARMs, start out with a lower “teaser” rate, which makes them easier to qualify for. However, after a specified term, the rate fluctuates to match prevailing market conditions. This reduces your payment if rates go down but increases it if rates go up. You never know what you’re going to pay over the life of the loan.

ARMs are generally expressed with two numbers. The first shows the number of years that the rate is fixed and the second, how often, in years, that the rate adjusts. A 5/1 ARM is fixed for five years and adjusts every year after that. APRs for such mortgages range from 3.16 to 5.45 percent compared to a national average of 3.22 percent. Monthly payments run from $1,989 to $3,659.

Lowering the Payment

The best way to lower your monthly payment and interest rate is to improve your credit score. Check out your credit report for free from such sites as Credit Karma or Annual Credit Report. Do this way in advance of buying a home. You want time to improve your finances. The national average for credit scores is 681 and scores from 680-729 are considered good. Scores from 730-799 are great and those above 800 are excellent.

Check your report, which details personal information, the amounts you owe and to whom, and whether any of your accounts have been turned over to collection agencies. If you find any inaccuracies, contact the merchant immediately and have it corrected. Then start improving your score by reducing the balances you owe and paying your bills on time.

If you want more information on financing a home or want to buy a property, please contact us.