As the real estate market continues to struggle and home mortgage rates continue to hover at historic lows, more homeowners are considering refinancing their existing mortgages or investing in additional real estate. Banks and mortgage companies have developed a dizzying array of financing options to enable them to accommodate any home buyer. Therefore, it is important for the borrower to understand the basic mechanics of a mortgage prior to entering into any financing agreement.

The standard home mortgage rate is the rate lenders charge for a fixed rate home loan. Generally, the duration of a fixed rate mortgage is either 15 or 30 years. Many borrowers prefer fixed home mortgage rates due to the volatility of the market. Fixed home mortgage rates provide borrowers with a stable monthly payment over the life of the loan.

Home mortgage rates rise and fall with inflation. Mortgages are investment instruments which are bought and sold in the secondary financial markets. As inflation drives the value of the dollar down, home mortgage rates rise. A mortgage is an investment for the lender. Therefore, the lender will consider a variety of economic indicators when setting home mortgage rates for borrowers. Generally, a borrower can expect overall home mortgage rates to rise in a thriving economy and fall in a tightening economy.

Although overall home mortgage rates are controlled by the market, the individual borrower's home mortgage rate is determined by the borrower's mortgage company or bank. The best home mortgage rates are offered to the borrowers with the best credit scores, normally 720 or above.

There are steps a borrower can take to maximize his credit score. The borrower should obtain copies of his credit reports and review them for errors and inconsistencies. The borrower should also be prepared to explain any problems noted in the credit reports to the lender. The simplest strategy borrowers can use to ensure they maintain the highest credit scores and obtain the lowest home mortgage rates is to consistently pay their bills on time.

Borrowers can also increase the likelihood of being offered better home mortgage rates by increasing the amount of purchase money involved in the purchase contract. Although borrowers in today's mortgage market are typically expected to provide 20% of the purchase price as a down payment, a larger down payment could be an advantage to borrowers when negotiating home mortgage rates. In addition, the larger down payment could lower the required monthly payment.

Higher home mortgage rates are typically offered to borrowers with credit ratings of less than 720. In addition, borrowers who cannot provide the 20% required down payment may still be offered mortgages with higher home mortgage rates if the borrower is able to obtain private mortgage insurance (PMI).

Remember, home mortgage rates directly impact the monthly payments over the life of a mortgage. Therefore, the negotiation of the home mortgage rate is just as important as the negotiation of the purchase price.