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The Difference Between A Fixed Rate Mortgage and A Variable Rate Mortgage
from:With the various options in the industry nowadays, this is probably the most confusing time for anyone who is considering to avail of a mortgage. Moreover, interest rates seem to be constantly fluctuating and this adds up to the confusion in getting the best option.
Generally, there are two major types of loans. These are the fixed rate mortgage and the variable rate mortgage. Both types have their own advantages and disadvantages which anyone should consider carefully.
A fixed rate mortgage makes the monthly payments the same all throughout. Interest rates do not change whether or not there is an increase in the industry. What was set at the very start continues until the entire loan has been paid for.
On the other hand, a variable rate mortgage paves the way for some adjustments in the interest rates. If the rates are higher now, monthly payments will increase as well, as regulated by a certain interest index. Advantage comes in when the rates decrease at a certain period of time.
If you are after stability, fixed rate mortgages are most suitable. However, if you are willing to gamble a bit and hold on to both possible risks and rewards, variable rate mortgages may be appropriate.
The previous years had shown significant decreases in interest rates. Such phenomenon has prompted a lot of people to prefer fixed rate mortgages. In this way, they have been able to preserve such stable interest rates over a period of time.
Fixed rate mortgages may run from 6 months to 25 years but the agreed upon interest rates are guaranteed in spite of fluctuations in the market. Security and stability are indeed not a question here so this is best for those with limited and fixed monthly incomes.
However, if you prefer a short-term option, variable rate mortgages seem to be best for you. With this type, you do not have to commit to a certain interest rate for a very long period of time. There is more flexibility.
Moreover, a variable rate mortgage gives the borrowers an opportunity to make the most out of lower rates. The interest rates are normally determined by subtracting a set percentage from a prime rate which is actually what banks usually offer only to their most creditworthy customers. This is, in fact, a source of potential savings that attracts a lot of borrowers.
Studies have shown that although rates are fluctuating, variable rate mortgages still contribute more savings over a fixed one. Most people are simply afraid to take risks that is why they opt for a more stable one. However, statistics show that variable rate mortgages are more advantageous over fixed rate mortgages 88% of the time.
In addition, if you have plans of selling your home after a number of years, variable rate mortgages will work best for you where equity is easily built. You can even opt to get a balloon mortgage which starts as variable and stops at a certain point. At such period of time, you will be required to settle the remaining balance in full and payment may come from the sales that you have generated out of selling the home.
To be able to know further which is better, it is always advisable to consult an expert in this area. Such expert can provide information on the movements of interest rates. He can also provide some insight on the interest rate climate which may then lead to the consideration of the option that matches well your financial situation.
Nevertheless, do not expect that the process shall be easy. Understanding the interest climate is not straightforward as there may be several influences in the current market. Foreign exchange, inflation, bond and equities markets, and foreign treasury policies are just some of the major considerations that experts look into.
Indeed, both types have pros and cons. It will then be up to you how you shall evaluate these but it is always important that you know your financial status as well as your plans for the future. Your evaluation must be as realistic as possible so that you will not end up carrying a burden that is too difficult for you to handle.
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Mortgage Massachusetts News
Massachusetts Pension Fund Takes Hit On Alpha Strategy (Nasdaq)
Massachusetts' state pension fund has taken a hit on an esoteric investing strategy known as portable alpha, but still plans to use the technique in its portfolio going forward, the executive director of its supervising board said Wednesday.
Read more...Tougher ethics penalties sought (Boston Globe)
The state's top ethics enforcer testified yesterday that the State Ethics Commission needs stronger tools to fight coziness, cronyism, and corruption in Massachusetts, including the power to levy larger fines.
Read more...Neighborhood destined for foreclosure relief (Worcester Telegram & Gazette)
FITCHBURG - A city neighborhood plagued by mortgage foreclosures is targeted for relief.
Read more...Mortgage Rates Drop to Lowest Level This Year (PR Newswire via Yahoo! Finance)
Year Rate Now at 5.32%, According to Zillow® Mortgage Rate Monitor
Read more...Turnpike Partnership Could Give State Cash (WCVB Boston)
A transportation expert says creating a public-private partnership to run the Massachusetts Turnpike could give the state a sizable sum of upfront money to use on various transportation needs.
Read more...Prices down, homes sales up in Massachusetts (The Eagle-Tribune)
While the nation continues to reel from a fall-off in home prices and sales, local real estate agents are reporting a surge in buyer interest. During the summer and into September, an increasing number of people got into the real estate market, whether they were investors looking to pick up a cheap multifamily, or first-time homebuyers snagging a low-priced single-family home.
Read more...State To Distribute Bridge Repair Funds (WCVB Boston)
Massachusetts authorities have begun distributing the first installment of nearly $3 billion set to be spent over the next eight years repairing hundreds of the state's deteriorating bridges.
Read more...Geithner May Seek to Push Bair Out After Clashes During Crisis (Bloomberg via Yahoo! News)
Dec. 4 (Bloomberg) -- Timothy Geithner, President-elect Barack Obama's choice for U.S. Treasury Secretary, is seeking to push Federal Deposit Insurance Corp. Chairman Sheila Bair out of office.
Read more...State St. ready to cut (Boston Herald)
Boston's State Street Corp. will axe up to 1,800 jobs, or about 6 percent of its work force, amid increasingly gloomy reports that the regional economy is deteriorating...
Read more...Fed’s Lacker Says Safety Net Limit Is Critical Issue (Update2) (Bloomberg)
Dec. 3 (Bloomberg) -- The Federal Reserve, U.S. Treasury and other agencies must roll back the “unprecedented” expansion of the government safety net rather than try to encircle it with more regulation, Richmond Fed Bank President Jeffrey Lacker said.
Read more...