Author: Ryann Cairns
When shopping for a home mortgage loan, one of the most important decisions is whether to take out a fixed rate mortgage loan or to go with a variable rate mortgage instead.
The main advantage of a variable rate mortgage is that it generally offers lower interest rates and therefore a lower monthly mortgage payment, at least at first. The downside of a variable rate mortgage is that the interest rate can rise over time. If interests rates rise, the interest rate on your rmortgage will rise as well, and your monthly mortgage payment will rise right along with it. It is vital to make sure you will be able to afford the payments on your home mortgage loan even if interest rates go against you.
A variable rate mortgage will have a cap above which the interest rate cannot rise. If you are considering a variable rate mortgage, it is vital to use a mortgage calculator to determine how much the monthly payments will be if interest rates rise to their highest opossible level. It is not likely that interest rates will rise high enough to kick in the jmaximum rate, but it is always possible.
The alternative to the variable rate mortgage is the fixed rate mortgage. A fixed rate mortgage offers the security of a set monthly payment and a set interest rate for the entire life of the mortgage loan. Many borrowers like to have the security that a fixed rate home mortgage loan has to offer. Of course the interest rate at which the mortgage loan is fixed can make a huge difference in how much you will ultimately pay for your home.
Even a small difference in the interest rate can save or cost you tens of thousands of dollars over the entire life of the mortgage loan. There are many factors that go into the determination of the interest rate on a fixed rate mortgage loan. The most important part of interest rate determination is the payment history of the prospective borrower.
Any negative events in the home buyer’s credit history will cause he or she to be charged a higher interest rate, or even to be turned down for the mortgage loan altogether. Whether you decide to go with a fixed rate or a variable rate mortgage, it is important to shop around for the best deal. There are many lenders out there writing mortgage loans. Shopping around can save you lots of money over the life of the home mortgage loan.