Fixed Rate and Variable Rate Mortgages

Best Type of Mortgage

▪ As you apply for a mortgage, you need to know what type of mortgage is best for you.

▪ Remember, not all mortgages are the same and the term may vary increasingly, depending upon the type of property you’re buying, your lender and the current status of the market.

▪ One of the most important aspects of a mortgage is the rate of interest, and whether it is fixed or variable

Types Of Mortgages

Fixed Rate Mortgages Variable Rate Mortgages

Fixed Rate Mortgage

A fixed rate mortgage (FRM) is a type of home loan that is based on a constant or unchanging interest rate.

Generally, the rate of interest for a fixed rate mortgage will be unchanged throughout the course of your mortgage.

For example, if you obtain a mortgage with a 5 percent interest rate, your rate of interest will remain the same for the course of your 20 or 30 year mortgage.

Benefits of Fixed Rate Mortgages

One major benefit of a fixed rate mortgage is that borrowers can manage their monthly budgets and payments Because, your interest rate is fixed, so it is easy for you to manage budgets and plan without worrying about fluctuating interest rates

Saves Money

Fixed rate mortgages are sometimes more expensive for the borrowers

For example, a mortgage with fixed rate can have very high interest rate than a variable rate home loan. However, if the interest rises, the fixed rate will remain the same, thus saving money.

Variable Rate Mortgage

A variable rate mortgage (VRM), also referred as an adjustable or a floating rate mortgage, is a type of home loan that fixes its interest rates on the current market conditions

Interest Adjustments

As expected, each month or quarter, your rate of interest will vary from the rate issued by your bank and the private lending institution

Generally, the mortgage is directly linked to the standard index interest rate

But, if this is not mentioned in the contract, then the interest rate can be adjusted at the lenders choice

Some lenders may offer a cap rate, meaning there is a maximal percentage on how high the rate of interest can go.

This is designed to preserve borrowers against the extreme or inappropriate burden in the case of financial downturn or climbing interest rates.

Fluctuating Market In General, variable rate mortgages are usually cheaper than fixed rate mortgages, but this can be changed.

Basically, if the rate of interest goes up, it does increase the cost of your mortgage; and if rate goes down, the inverse is true.

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