I’ve found there to be a lot of confusion on the basics or mortgage rates, and with this in mind I thought it was time to offer my thoughts on them. Buying a home is a big life decision, and your mortgage should have the same thought and care put into it.
The Two Types Of Rates
In todays marketplace, you can choose from two mortgage rates: Fixed Rates or Variable Rates. I will go into further detail shortly, but you can probably guess how they work based on their names. There are a few key factors to consider when looking into these options, and knowing whether or not you’re comfortable with taking on some risk that could possibly save you some money down the road, or if you’d prefer to have a stable rate contains no risk is perhaps the biggest question to ask yourself.
What Are Fixed Rates?
Consistency and stability are two words that perfectly describe how Fixed Rates function. If you take on a Fixed Rate Mortgage, you will not experience any fluctuation or change in the amount you’re paying towards principal and interest during the mortgage term. The rate is locked and cannot rise or fall, so you will consistently know every month what you owe.
You should consider a Fixed Rate if:
You prefer stability in your payments, even if they aren’t the lowest they could be
You want to ease the the stress of budgeting
You prefer an interest rate and payments that are locked
What Are Variable Rates?
Variable Rates involve more risk than Fixed Rates, but offer the borrower the chance to pay less throughout their term. Throughout this term, your rate may either increase or decrease as time goes on. With this in mind, the borrower should be comfortable with some risk.
You should consider a Variable Rate if:
You are looking to save money, but can handle an increased rate from time to time
You want to pay off your mortgage faster
You need a little more financial flexibility and are okay with paying extra if the prime rate increases
As mentioned earlier, when buying a house, a mortgage is an important factor and in order to be sure that you’re making the right decision you should spend some time researching your options. If you’re not sure which option is right for you, don’t hesitate to reach out to me today!