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Mortgage:
Your First Mortgage
Fixed Rate
Mortgage vs. Variable Rate Mortgage
The
Difference Between A Fixed Rate Mortgage
and A Variable Rate Mortgage
With
the various options in the industry
nowadays, this is probably the most
confusing time for anyone who is
considering a mortgage. Moreover,
interest rates seem to be constantly
fluctuating and this adds up to the
confusion in getting the best option.
As we
have discussed previously, 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 that 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.
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, 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.
Previous years have 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. This rate 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 alternative.
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. An 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 will 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 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.
Table of Contents
Mortgage News:
Live Search: mortgage site:msnbc.msn.com
Search results
Foreclosure gridlock threatens economy - Mortgage Mess- msnbc.com
As millions of homeowners fall behind on mortgage payments and face foreclosures, many are running into bureaucratic nightmares as they try to restructure their loans.
Countrywide helps subprime borrowers - Mortgage Mess- msnbc.com
Countrywide Financial Corp., under pressure to help stem growing home loan defaults, says it will expand programs to help borrowers manage their mortgage payments regardless of the ...
Latest housing victim: Mortgage insurers - Mortgage Mess- msnbc.com
As the housing market crumbles, homeowners are worried about mortgage payments and sellers are worried about slumping prices ? but the companies that insure their loans are ...
The Mortgage Mess - A special report by msnbc.com.- msnbc.com
The Mortgage Mess - A special report by msnbc.com on mortgage problems affecting the housing market with additional headlines and news about the subprime mortgage industry.
Who are the winners in mortgage mess? - Answer desk- msnbc.com
Financial markets are pretty skittish these days. But in any market, one person?s loss is often another person?s gain. So where did all those ?losses? from bad mortgages go
Want a second mortgage? Good luck! - Mortgage Mess- msnbc.com
The common practice of homebuyers with shaky credit taking out second mortgages for downpayments is ending because there?s no investor demand for securities backed by such loans.
Countrywide mortgage production tumbles - Real estate- msnbc.com
Countrywide Financial Corp. said Tuesday its level of home loan production fell by almost half last month from the same month last year, while the percentage of delinquent loans ...
Study: Rising foreclosures to hurt U.S. cities - Mortgage Mess- msnbc ...
Rising foreclosures will lead to billions of dollars in lost economic activity next year in major U.S. cities, but homeowners and financial institutions have the ability to work ...
Foreclosures hit some cities hard - Mortgage Mess- msnbc.com
Foreclosures rates continued to rise in the third quarter in most of the top 100 largest metropolitan areas of the country, according to the latest data from RealtyTrac.
Wall Street?s role in housing meltdown probed - Mortgage Mess- msnbc ...
Regulators are trying to punish Wall Street for mortgage finance practices that expanded home ownership and spread risk among a host of new players ? but also may have duped ...
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