Difference Between Fixed Rate And Variable Rate Mortgage
Usually two types of loans are available to the borrowers. They are fixed rate and variable rate mortgage. Both have their own sets of pros and cons which one should study carefully before making any decision.
Under the fixed rate mortgage, the borrower has to repay the same fixed amount every month throughout the loan period, while in variable mortgage scheme; the interest rates vary within the loan period. These conditions have advantages and disadvantages. In the fixed rate scheme of fixed rate mortgage, the borrower has a clear knowledge of what to pay every month and thus, can plan his expenses accordingly. But in variable one, the payments amount fluctuates making it difficult for the borrower to predetermine his expense for the month. However, it becomes advantageous when the rate of interest falls down for a particular period of time, thereby saving some money during those months.
However, fixed mortgage plans are suggested to stable family people. This is because the rate of interest decided at the starting of the loan period is continued throughout the whole period, without being affected by the market. Moreover, recent economic condition showed some steep decrease in interest rates, which even after rising up will not affect someone who has already cashed in on the slump in rates.
However, if one is looking for a short term investment- say for a year or so, then variable pay may be suggest, again keeping the ongoing market and its forecast in view. Moreover, over a short period of time, variable pay proved to earn the borrower more savings than its fixed counterparts. However, it is the borrower’s financial condition and the credit history which is ultimately to be taken into consideration before deciding upon the plan of mortgage.
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