Capped Rates

Author: Ryann Cairns

One of the most important considerations for any home buyer considering using a variable rate home mortgage loan is the interest rate cap on that loan. All variable rate and adjustable rate home mortgage loans have a capped rate, a rate above which the mortgage interest rate cannot rise.

It may not be likely for interest rates to rise far enough to kick in the interest rate cap, but with a variable rate mortgage loan that is always a possibility. It is vital that the mortgage shopper find out exactly how high the interest rate can go before signing any loan paperwork.

Once you know what the interest rate cap is, use a mortgage calculator to determine how much your monthly payment will be if the interest rate were to rise to its highest possible level. If this monthly mortgage payment frightens or shocks you, it may be wise to go with a fixed rate home mortgage loan instead. If however, you feel comfortable even if the monthly mortgage payment were to rise substantially, and if you feel you have the visitbility of income to handle these payments, a variable rate mortgage may be a good choice for you.

A variable rate mortgage can also be a good choice if you do not plan to stay in your home more than a few years. Many people who move often for their job find that using variable rate mortgages can save them a lot of money. These short time homeowners are able to take advantage of the low initial rates offered by the variable rate mortgage. They are then able to sell the home at a profit when they move and use the equity they have built to purchase a home in their next location.

Variable rate mortgages will generally have an interest rate which you can lock in to convert the variable rate mortgage into a fixed rate mortgage. This is a handy feature and it offers some protection against a rising interest rate environment. Whether you choose a variable rate mortgage or decide to go with a fixed rate home mortgage loan instead, it is vital to do your homework up front and shop around for the best rate. Getting the best possible deal on your home mortgage loan can save you thousands of dollars over the life of the mortgage.

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