Before You Choose Your Mortgage Rates
Mortgages rates are highly volatile and are controlled by a host of market sources
. This means that the rates could high or low without much warning and could translate into gains or terrible losses for un-suspecting investors. Today, investors are given options to either float or peg the interest rates as they deem fit.
There are many variations of mortgages. Fixed mortgage rates were introduced to cater for investors that cannot the rigours of fluctuating interest rates. As the name implies, it is when the interest rate is pegged at a certain rate for the duration of the term of the loan. With this type of mortgage, only the additional cost of the property such as taxes and insurance might change due to various factors but the principal and the interest payments remain fixed until the maturity of the loan. Fixed mortgage rates are not tied to an index but are determined by an advertised rate and the mortgage is calculated by the amount of loan, the compounding frequency and the mortgage term.
Such mortgages are widely available in some countries for the duration of the loan. In some other locations, it is only available for a fixed period of time say 10 years, and not more. Regardless, they are still very popular as statistics show that about 75% of property owners opt for fixed mortgage rates. The reason for this popularity might not be far-fetched. Most property buyers work with a fixed budget in mind, for the foreseeable future, they need to know the nature of their financial obligations - security over profitability, the fix rates provide them with such. The initial monthly rates for fixed mortgages are significantly higher than floatable ones; this is because of the size of the perceived risk by the lending institutions. You might not be able to afford expensive homes but you are shielded from the sometimes harsh and highly volatile forces of economy.
by: Chris Cornell
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