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Fixed Rate Mortgage:
In a fixed rate mortgage the buyer agrees to pay the same interest rate for a set period of time. This allows an owner to budget correctly since there are no fluctuating costs, and adds a sense of security as buyers become prepared for the same monthly payments.
The interest is in direct relation to the amount of the mortgage, so as you pay off the mortgage the monthly payments will subsequently lower and you end up paying less - which of course can end up saving you lots of money depending on the term and interest rate movement. Fixed rate mortgages are often used as they are less risky than the variable counter part.
That being said, it is a possibility to end up paying more with a fixed rate if interest rates lower - and the last thing anyone wants to do is give more money to their mortgage lender. As mentioned above, a buyer agrees to pay a set interest rate for a specific period of time, so if rates do suddenly drop this does not impact your mortgage as you would still pay the same rate for the agreed upon term.
This is a great option for those who like to budget, and can create a sense of security for people who may not like the gamble that the variable rate mortgage provides.
Variable Rate Mortgage:
Variable rate mortgages can be a metaphorical role of the dice. It is much like the game Russian Roulette in which you bet on specific number (or rate in this case) and hope the number is in your favor.
If interest rate drops, so will the amount you pay on your monthly mortgage, but if they rise you can end up paying a lot more.
This makes variable rates a gamble which, depending on circumstances, can end up saving you a lot of money or cause the mortgage to become unaffordable. These rates can continue to fluctuate constantly as it is based on interest rate fluctuation.
On a positive note, variable rates can provide greater flexibility in comparison to fixed rate mortgages. If a persons salary fluctuates and they gain greater income through bonuses and/or commissions they can benefit greatly if interest rates are low. In addition, when a buyer applies for a variable rate mortgage the introductory interest rate will be much lower than the fixed rate. Once a certain amount of time has passed the mortgage payment will begin to fluctuate and adjust based on current interest rates.
In Conclusion
It is completely up to the consumer to decide which option works best for them. One size does not fit all, so remember to do your research, speak with a professional, and choose the option that is right for you. For more useful information you can check out our previous blog post here.
For More Real Estate Information Visit: https://www.kellyboonerealtor.com/blog/386427
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