The Fixed-rate Mortgage Loan and Competing Loans

By Honey B Wackx

There are different forms of mortgage loans that include fixed rate mortgage loan, variable rate mortgage or adjustable rate mortgage. Risk is involved in every mortgage loan. However, some people benefit from a variable interest rate loan while some of them find fixed rate mortgages loan beneficial. When loan interest rates are high you will see more variable interest rate loans because it is usually easier to qualify for them.

Variable rate mortgage

Initially, the interest rate of the variable rate mortgage is comparatively lower than the fixed rate mortgages loan. However, the interest rates increases gradually. The initial interest rate of the variable rate mortgage attracts many people to opt for it. Later, as per terms of the loan, the interest rate increases causing inconvenience for the borrowers. Sometimes the increase is a significant amount of money, depending on the loan amount.

At the time of taking this mortgage loan the interest rate is fixed based on the local average interest rates. Later, gradually the interest rates keep increasing and decreasing based on the rise and fall of the market. The interest rate starts increasing in the initial six months or one year by changing the average interest rates. However, it is made sure that the customers benefit from the variable rate mortgages.

Who can benefit from variable rate mortgage?

This mortgage loan is beneficial for the newly-wed couples who choose to stay in a small house at present and may later shift to a bigger house when they wish to expand their family.

It is beneficial for the people especially who have started a new business and are earning less income at present and prospects show an increase in income within a five years period.

It is beneficial for the people who want it for a short period.

Mostly real estate investors benefit the most to buy houses for now at low interest rates and sell the houses after a period of five years.

Fixed Rate Mortgage Loan

Many people opt for the fixed rate mortgages and so it has become very popular and it has become the most wanted mortgage loans by the buyers throughout the country.

A fixed rate mortgage is what the name itself tells about its nature. Unlike the adjustable rate mortgage, the fixed rate mortgage has the same interest rates and it does not rise or fall for the entire mortgage period. The fixed rate is mentioned in the contract which is made at the beginning.

Though a fixed rate mortgage loan has the same interest rate, it is inflated. So before you choose this make sure that you will be able to pay off the huge sum. If you have taken this type of loan for thirty years period then you will end up paying a large amount on interest alone.

As regards the variable rate mortgage, the interest rate keeps increasing and decreasing based on the market level. If the average interest rate is 6%, the next time you make payment the interest rate can go up to 7%, 8% and so on. Later, the interest rates can fall and rise again.

A fixed rate mortgage loan is available for a fifteen year period and for thirty years periods which unfortunately are the most common. A thirty year fixed rate loan has much more total interest you pay vs. a fifteen year similar loan. It is obvious that the thirty years are more and the risk involved for the lender is high in this case than the fifteen year period mortgage.

Who can benefit from fixed rate mortgage?

It is beneficial for the people who want to buy a big house because of the lack of space in the present house to accommodate all the members of the family.

It is beneficial for the people who are not satisfied with the variable rate mortgages and want to settle it by taking the fixed rate mortgage even though its interest rate is a little inflated compared to pay a variable rate loan.

It is beneficial for the people who are looking after small businesses and wishes to stay home for an indefinite period.

You should choose wisely the mortgage you think will benefit you the most and not too risky. To many people, the fixed rate mortgage loan sounds better idea because of its low and fixed interest rates. However, if you wait till the end of thirty year period to pay off the mortgage loan then it can be a hefty lot of sum.

Honey B is studying about luck and good health the natural way.