What is the interest rate of a mortgage?

The interest rate of a mortgage loan refers to the annual cost you must pay for borrowing the money, expressed as a percentage. This rate is one of the most important factors to consider when obtaining a mortgage, as it determines how much you will pay over the principal amount of the loan.

Mortgage interest rates can be of various types:

• Fixed interest rate: Remains constant throughout the life of the loan. This means that the monthly payments and the interest rate do not change.
• Variable or adjustable interest rate: This can change over time, usually in response to changes in benchmark interest rates, which fluctuate according to market conditions.
• Nominal interest rate: Is the percentage established in the contract, without considering other factors such as inflation.
• Real interest rate: Considers the nominal interest rate and adjusts for inflation, showing the real return of the loan.
• Effective interest rate: Includes all costs associated with the loan, such as fees and charges, and is particularly relevant when compound interest is applied.
• Simple interest rate: Applies only once on the total initial amount of the loan and is common in short-term loans.

The choice between a fixed or variable rate depends on your needs and your ability to handle changes in monthly payments. Interest rates are influenced by several factors, including general economic conditions, the borrower's credit score, the type of loan, the loan amount and down payment, and the term of the loan.