| Should Home Owners Consider Fixed Or Variable Rate Mortgage Option |
| Articles - Mortgage |
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You may shout "Wow!" you say to your family as you hit the brakes on the car. "Did you see the mortgage rate those guys are promoting?" Your worries are over you are thinking. You basically got to lock in a rate like that for the next decade and you are done.
You may yell "Wow!" you say to your spouse as you hit the brakes on the car. "Did you see the mortgage rate those guys are promoting?" Your worries are over you may be thinking. You just got to lock in a rate like that for the next decade and you are done. Not so fast there. That rate may not be the right one for you. Normally, the lowest available rate - and the one that catches your eyes from the street - will be for a variable or adjustable-rate mortgage. That rate has the prospect to be like a roller coaster. The posted variable is the rate you're getting today and you can't really predict what kind of ups and downs are in the future. A lender will provide different rates for different kinds of mortgages. The rates are determined dependent on financial risk; both to you and to the lender. When a customer is willing to meet the risk, then he/she is rewarded with a lower rate. If the lender is taking on the risk (that is, the customer is promised a particular rate- regardless of what happens in the future), then the rate is higher. Normally the longer the term, the higher the risk for the financial institution. So how will you decide? You should choose fixed-rate mortgages because they require a low risk tolerance and are usually better suited for first-time buyers. Ask yourself these questions when deciding: Do you need to know exactly what your payment is going to be over a long period of time? Do you want to avert the need to always watch the rates? Do you have less than 25% down? If you answered "yes" to all, or most of these questions, a more conservative fixed-rate mortgage would be the better option to you. A variable or adjustable-rate mortgage is best suited to people who have a flexible budget and can allow higher risk. You may askyourself these questions: Do you constantly watch market conditions? Can you deal with any sudden rate increases that could increase your payment? Do you have 25% or more equity in your home? If you answered "yes" to all, or most of these questions, then a variable or adjustable-rate mortgage might right for your needs. You should talk with your mortgage broker if your institutions offer a particular promotional rate for the first few periods of a variable-rate mortgage. Also ask what your rate will be based on - prime minus 0.5% or 0.6% or on Bankers' Acceptances (BAS) plus 1%. The latter being a new kind of adjustable-rate mortgage that has recently been introduced to the market. Most variables or adjustable allow you to exercise a choice to "lock in" a fixed rate at any time for the remaining portion of your mortgage term or for a longer term. If the uncertainty of a variable rate is going to give you sleepless nights, then you may wish for a fix rate over the term. Many individuals favor the certainty of a fixed-rate mortgage. They know precisely how much they will pay over the term of their mortgage, and they can plan accordingly ... with no financial surprises. But if rates do fall and fall then you are committed to the rate that you have made. The suggestion is to have a mortgage broker assist with which selection best meets your needs or else do some research online to see what the majority go with. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Mortgage Assistance Site , find info and help on lowering your mortgage payment, Click Here. |