Which is Better? Fixed or Variable Rate Mortgage?
The setup of a mortgage is one very complex affair and it takes different facets to make a deal. The question as to whether you should opt for a fixed or variable rate home mortgage is never an easy one. And while many things come into play, the deals almost always fall into two camps. This means that it is either a fixed or a variable rate. It is important that you learn and distinguish the various mortgage deals and options, and see which ones work for your financial situation. That said, let’s look at what fixed and variable rates mortgages mean for you.
Fixed Rate Mortgage
With this kind of mortgage, a lender will give you a special rate for a short term. During that time, no matter what happens on interests, you will be repaying a fixed rate. This is a kind of incentive offered to the borrower and the period of this deal may vary. It may be one, two, three, or let’s say 10 years. With fixed rates, you know what you will be paying and the cost of the mortgage. You can easily budget for the loan facility. But you also want to know the market anticipations. Probably the rates may fall and you want to opt out of the deal early, in such a situation, you may have to pay a penalty. Always think outside the box when opting for a fixed rate mortgage deal and be careful about the long fix.
Variable Rate Mortgage
When you talk of a variable rate mortgage, it means that the rate will shift up and down depending on the prevailing mortgage conditions. When there is inflation or growth, interest rates will hike to discourage people from spending and make saving an attractive option while borrowing becomes costlier. In times of downturns, the rates will be cut to encourage consumers to spend. Variable rate deals are classed in different categories. There are trackers, discounts, and standard variable rates (SVRs).
With variable rates, there are capped deals, which provide an upper limit. What this means is that there is a ceiling where the rates cannot exceed even when tracked rates are higher. These deals aren’t common and many borrowers wish to go for the fixed rates because of the surety they enjoy. If you want to work with a mortgage financing company that understands the ins and outs of this industry and has the best interest of customers at heart, you may think Guardian Capital.