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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 Interest Rate News
Mortgage applications up 112.1% last week, due to drop in rates: MBA - MarketWatch
 Post Chronicle | Mortgage applications up 112.1% last week, due to drop in rates: MBA MarketWatch - Example: A 3% interest rate reduction on a $100000 principal mortgage would save the borrower $3000 per year. What kind of purchasing power would this alone ... Falling rates spark rush to mortgage applications UPDATE 1-US mortgage applications post largest gain ever Lower mortgage rates fuel increase in applications |
Time for banks to pass on mortgage interest rate cuts - Burnley Express
Time for banks to pass on mortgage interest rate cuts Burnley Express, UK - Clearly the government is not controlling my mortgage provider as much as it should be! If the interest rate goes up, my mortgage goes up by at least as ... Mortgage customers may miss out on interest rate cuts Bank of England urged to slash interest rates again Savers and borrowers await interest rate cut |
Bernanke: Interest rate cuts won't be enough - USA Today
 ABC News | Bernanke: Interest rate cuts won't be enough USA Today - "Although further reductions from the current federal funds rate .... are certainly feasible, at this point the scope for using conventional interest rate ... FED FOCUS-Fed could aid fiscal stimulus with bond purchases Central Bankers Open the Floodgates to Fight Deflation Fed Prepared to Lower Interest Rates, Bernanke Says |
Tracker alert over expected interest rate cut - guardian.co.uk
 Sky News | Tracker alert over expected interest rate cut guardian.co.uk, UK - ... at the Council of Mortgage Lenders' annual conference, Jon Pain, the FSA's retail markets managing director, said that while tracker deal interest rate ... One million homeowners with mortgage collars won't benefit from ... UK's biggest mortgage lender 'could be forced' to pass on interest ... Beware Of This Tracker Mortgage Trick |
Which? says mortgage rates should fall - Money News
 Javno.hr | Which? says mortgage rates should fall Money News, UK - Which? said: "If the [base] interest rate is cut again on December 4th, it will be even more important for banks to cut their rates and give consumers the ... Banks pushed to cut mortgage rates |
Fixed-rate trap snares 43000 home owners - Sydney Morning Herald
 Sydney Morning Herald | Fixed-rate trap snares 43000 home owners Sydney Morning Herald, Australia - MORE than 40000 unlucky people have been caught out in a fixed mortgage rate trap, having taken out their loan at the highest fixed interest rates in a ... |
Hong Kong shares outlook - Higher on Wall St rebound; limited ... - Forbes
 Hürriyet | Hong Kong shares outlook - Higher on Wall St rebound; limited ... Forbes, NY - The interest rate for mortgages under 1.5 mln hkd for new customers will increase to prime rate minus 1.25 pct, or an effective mortgage rate of 3.75 pct. ... HSBC raises mortgage rate most in 10 years China Property Slump Threatens Global Economy as Growth Slows Hong Kong shares sharply lower on Wall St plunge, HSBC mortgage ... |
Lower mortgage rates help but jobs, prices key - Reuters
 Reuters | Lower mortgage rates help but jobs, prices key Reuters - "The lower interest rate will help, but that's not the whole story," said Doug Duncan, chief economist at Fannie Mae (FNM.P: Quote, Profile, Research, ... HK shares slide 5 pct on grim data; HSBC plunges European stocks stage late rally ahead of rate cuts HK shares set to fall on regional slide, grim data |
Sheila Bair's Mortgage Miracle - Wall Street Journal
Sheila Bair's Mortgage Miracle Wall Street Journal - This means that part of the original loan would be converted to an interest rate of zero, and it would not have to be repaid until the home is sold or ... |
Yen Rises as Weakening Economy Cuts Appetite for Higher Yields - Bloomberg
 Maktoob | Yen Rises as Weakening Economy Cuts Appetite for Higher Yields Bloomberg - The benchmark interest rate of 0.3 percent in Japan compares with 3.25 percent in the euro region, 6.5 percent in New Zealand and 3.75 percent in Sweden. ... Positive Action by Fed May Trigger Desire for More Risk Dollar gains as risk aversion returns Asian currencies up against dollar |