The Latter Guarantees That The Interest Rates Will Not Rise

Category: Finance, Mortgages.

Mortgages are usually the answer to our need to buy a house.

Most commonly, we have a choice between fixed rate mortgages and adjustable rate mortgages. These days, there are many kinds of mortgages for us to choose from. The former type of mortgage charges a fixed rate of interest that shall not change at all for the entire period of the loan. Over the years, a majority of people have chosen to go along with the fixed rate mortgage type. The latter, as the name suggests, charges an interest rate that fluctuates depending on the rates that are prevalent in the market. Given that mortgages usually have long tenures, it is advisable to apply for a deal that charges a fixed interest rate.

This is not to say that mortgages with adjustable rates are not a good option. This makes it easier to plan one s budget later on, and it also provides a sense of security to the borrower at times when the rates of interest are likely to rise. If one is lucky, one can avail of significantly lower rates when the interest rates are at a low. The latter guarantees that the interest rates will not rise. This is an advantage that is absent in the case of fixed rate mortgages. But it does not promise the borrower of greater savings in case the interest rates do drop. Government policies that are put into effect once one has closed a deal generally have significant impacts on the amounts that the borrower has to pay.

Thus, there is something of a gamble in both cases. When applying for a fixed rate mortgage one should be aware that lenders are likely to fix rather high interest rates so that they can make their profits from the deal. If government policies actually lead to lower rates, a person with fixed rate mortgage would see that he is making rather large monthly repayments. Thus, even though a borrower might actually prefer a fixed rate mortgage because the rate of interest will not rise, he may be losing out on savings that may be possible with a variable rate if the interest rates happen to fall. Thus, it may be a good idea to look for a discounted mortgage which offers adjustable rates of interest. Greater discounts are usually offered on the less popular adjustable rate mortgages.

These days, most loan providers offer high discounts on mortgages. All that one has to do is be on the alert for the best deals possible.