Comparison between a Variable Rate and a Fixed Rate mortgage

11/19/2011

Mortgage RateMany people will argue that a Variable or adjustable mortgage rate is better than a fixed rate mortgage. You can rest assured that each option has its pros and cons; hence it would be for your best interests to discuss the pros and cons of each type f mortgage with a professional mortgage broker or specialist before making your final decision.

There are people who get attracted to variable rate mortgages while others will die with a fixed rate mortgage, depending on your financial situation, and the current housing market, you may lose or save money in the deal.

Variable rates can be very good in times when the economy is going through a period of stunted growth and the interest rates are at their lowest. In such times, the Central Bank will reduce the rates so as to stimulate a growth in the economy. It is believed that this gives consumers an incentive to purchase, thus injecting the economy by spending.

Needless to mention, this is very attractive for that home buyer who opts for a variable interest rate, as it will mean significantly low mortgage payments. There is a disadvantage however to opting for this type of mortgage; when the interest rates start to rise again, so will your monthly payments.

A fixed rate mortgage on the other hand, when chosen at the right can, can be very beneficial in the long run. When you get a fixed rate mortgage when the interest rates are generally down, you will have the advantage of paying the same low mortgage payments at the same rate for the loan tenure of your mortgage term; this is regardless of whether the rates will change along the way.

On the flip side of the coin, should you opt for the fixed rate mortgage when the rates are high and along the way rates go down, you will unfortunately have no choice but to see your money go to waste literally while others are paying very low rate for the same deal.

While there are the positives and negatives of choosing either of the two, you should also consider such things as the unpredictable mortgage payments when you opt for the variable rate mortgage. As such, a fixed rate mortgage becomes more attractive for most people as many would rather know how much they will be paying so as to plan their finances in advance.

A notable advantage of a variable rate mortgage is that should the rates go down as they sometimes will, you can always lock the rate in and move from a fixed rate to a variable one at any time in the course of your loan tenure. Fixed rate mortgages are never this flexible in the sense that once you select a mortgage rate, you will be permanently locked into the rate whether it goes up or down along the way.

While you can argue the pros and cons of either type of mortgage interest rate, your personal preference, your lifestyle, and your level of income are some of the basic factors that will help you determine which type suits you best.

About the Author: NVA Admin