Which Mortgage Is The Best For You
Before taking out a mortgage loan make sure that you know the differences between the different types of mortgage interest rate repayments
. Your interest rates, is the fee you have to pay the bank for lending you your mortgage loan, yet this rate is not always the same and can either increase or decrease your bond payments by a substantial amount every month. This is why it is important to understand the different types of mortgage rates and which one is best for you based on your situation.
The two basic types of mortgage loans are the Fixed rate mortgages and the Adjustable rate mortgages (also known as the floating rate or the variable rate mortgage), although the marketplace offers many varieties within these two main categories. Different mortgage rates are used in different countries, for example some countries may predominately use the variable rate mortgage or others the fixed rate mortgage. Each one has its pros and cons.
Fixed rate mortgages
A Fixed rate mortgage abbreviated FRM, is an interest rate that is predetermined and does not change for the entire term of the loan. This seems to be the most common mortgage for first time home buyers, as it is stable and is predictable when calculating your monthly expenses.
The main advantage of this loan is that the homeowner is protected from sudden and potentially large mortgage repayments if there is a rise in interest rates. Another key advantage is that with a fixed rate, home owners know what their mortgage repayments are going to be and so they can plan their other finances around that which makes it easier to set long term goals. Between the two types of mortgages it has the lowest risk, and most stability.
The disadvantage is that if the interest rate goes down your mortgage rate will not, unless you refinance your mortgage. Although the rate is fixed the total amount your pay depends on the loan term. A mortgage paid off over a longer period of time will have a higher interest rate as where as a shorter term will have lower interest rates.
Adjustable rate mortgages
Adjustable rate mortgages, or, floating rate mortgages, are variable and change depending on the interest rates. These types of rates are attractive because start with the initial payments being very low, which also qualifies people for a larger loan. Also when the interest rates are falling this allows the borrower to enjoy lower mortgage payments without the need of refinancing their homes.
The downside to this type of mortgage is that it is volatile and can change your monthly repayments frequently over the period of the loan. And taking out a larger loan could see your mortgage payments rise considerably as the interest rates rise.
Which one is best?
Before choosing your loan it is important that you assess your personal finances as well as the ever changing market place to see whether you can comfortable afford to pay your mortgage no matter if there is a shift in your personal finances or economic situation. Choosing carefully will help you avoid making costly mistakes in the future.
Which Mortgage Is The Best For You
By: Albie Steyn
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