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Choosing Between A Fixed Rate Mortgage and A Variable Rate Mortgage
from:If you are looking to buy a house or are going to mortgage yours, you have to know the two most common mortgage rates that prevail in the market today. And that's fixed rate mortgage and variable rate mortgage.
Fixed rate mortgage, as the name suggests, carries a fixed interest for a certain period of time. That period is called as mortgage term. The term can usually be from 6 months to as long as 25 years.
A variable rate mortgage has a fixed payment terms too. But its interest rate changes. It moves in pattern to the prevailing interest rates in the market. You pay a fixed amount, but it will be divided into interest payment and principal payment. So it follows that if the interest is high, more money goes for the payment for it instead of the principal.
Choosing which type of mortgage mainly depends upon your ability to handle risks. If you wanted stability in your payment terms for the life of it, then a fixed term mortgage is the one for you.
A fixed rate mortgage can create a fixed table for you for 5 years, if for example that's the term you like to apply for. For the span of 5 years, you are going to pay a fixed amount following the same interest rate table.
Now if you are one person who wanted to take the chance that the mortgage amount you applied for can be paid off on a much lower interest than the one given by a fixed rate mortgage, then a variable rate mortgage is for you. A variable rate mortgage provides for the possibility of getting a very low interest rate in a specific period within the term.
Expert financial analysts are better off with a variable rate mortgage. And that's because they can predict the trends of the current economic conditions. And if they could project that towards the next few years, then you are sure to benefit more from a variable rate mortgage.
In order for you to decide which of these two mortgage rates is fitting you, analyze your financial ability as well as you analytic skills. Fixed rate proves to be more stable than the variable rate. Take it if you prefer consistency.
Variable rate has its own rewards. But along with it, some risks attached. Are you willing to take the risks for the rewards? If your answer is yes, then you can choose the variable rate option anytime of the day.
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