Are you thinking of taking out a mortgage loan? Have you really considered the differences between the different mortgage interest rate repayments? When you loan money from a bank you have to pay a fee called interest for the loan, this fee varies according to market place factors like the interest rates, and the changes in the interest rate can affect your monthly repayments quite substantially if the correct loan is not chosen based on your financial situation. This is why it is important to understand the different types of mortgage rates and which one is best for you.
The two basic types of mortgage loans are the Fixed rate mortgages and the Adjustable rate mortgages (also known as the floating rate or the variable rate mortgage). Although the marketplace offers many varieties within these two main categories. Different mortgage rates are used in different countries, for example some countries may predominately use the variable rate mortgage or others the fixed rate mortgage. Each one has its pros and cons.
Fixed rate mortgages
Abbreviated FRM, a Fixed mortgage rate is a interest rate that does not change over the period of the entire term of the loan. This type of mortgage seems to be the preferred type of mortgage for first time home owners, due to its stability and predictability when planning ones finances.
One of the main advantages of this loan is that the homeowner is not subject to the raises in interest rates. These raises can be unexpected and potentially large. Another advantage is that with the FRM one can plan your monthly expenditures much better because the rates are fixed so you know how much to budget for. This makes it easier to set and realise long term goals. Between the two kinds of mortgages it is the most stable with the lowest risk.
Now although this type of mortgage seems the best it also has its disadvantages one being that, if the interest rates go down you mortgage rate payments will not unless you refinance your home. And even though the rate is fixed you might still have to pay other extra fees such as taxes and insurance.
Adjustable rate mortgages
The other kind of mortgage rate is the ARM or it is also known as the floating and variable rate. This type of rate can also be popular because the initial payments start very low, which means many then qualify for a bigger loan. These rates are variable and depend on the interest rates, so when the interests rate plummets, this allows the home owner to enjoy lower mortgage payments without having to refinance their homes.
The downside to this type of mortgage is that it is volatile and can change your monthly repayments frequently over the period of the loan. And taking out a larger loan could see your mortgage payments rise considerable as the interest rates rise.
Which one is best?
Considering your financial situation and the external economic factors one should always make your decision wisely. Consider each type of bond carefully as this will help you to avoid costly mistakes in the future.
Author Resource:
Danny Aaron manages the website http://www.isureins.co.za , a site devoted to providing you with the best information about mortgage
![[Valid RSS feed]](http://www.look4articles.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites
![[Valid RSS feed]](http://www.look4articles.com/images/rss.jpg "XML Feed For RSS")