Nowadays,there are various options in the industry these are probably the mostconfusing time for anyone who is considering availing of a
mortgage. Moreover, interest rates seem to be constantly fluctuating and this add up to the confusion in getting the best option.
Generally, there are two major
types of loans. They 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
mortgagemakes the monthly payments the same all throughout. Interest rates donot change whether or not there is an increase in the industry. Whatwas set at the very start continues until the entire loan has been paidfor.
On the other hand, a
variable rate mortgagepaves the way for some adjustments in the interest rates. If the ratesare higher now, monthly payments will increase as well, as regulated bya certain interest index. Advantage comes in when the rates decrease ata certain period of time.
If you are after stability, fixed ratemortgages are most suitable. However, if you are willing to gamble abit and hold on to possible risks and rewards, variable rate mortgagesmay be appropriate.
The previous years had shown significantdecreases in interest rates. Such phenomenon has prompted a lot ofpeople to prefer fixed rate mortgages. In this way, they have been ableto preserve such stable interest rates over a period of time.
Fixedrate mortgages may run from 6 months to 25 years but the agreed uponinterest rates are guaranteed in spite of fluctuations in the market.Security and stability are indeed not a question here so this is bestfor those with limited and fixed monthly incomes.
However, ifyou prefer a short-term option, variable rate mortgages seem to be bestfor 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 themost out of lower rates. The interest rates are normally determined bysubtracting a set percentage from a
prime ratewhich is actually what banks usually offer only to their mostcreditworthy customers. This is, in fact, a source of potential savingsthat attracts a lot of borrowers.
Studies have shown that although rates are fluctuating, variable rate
mortgagesstill contribute more savings over a fixed one. Most people are simplyafraid to take risks that are why they opt for a more stable one.However, statistics show that variable rate mortgages are moreadvantageous over fixed rate mortgages 88% of the time.
Inaddition, if you have plans of selling your home after a number ofyears, variable rate mortgages will work best for you where equity iseasily built. You can even opt to get a
balloon mortgagewhich starts as variable and stops at a certain point. At such periodof time, you will be required to settle the remaining balance in fulland payment may come from the sales that you have generated out ofselling the home.
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