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Mortgages rates continue to hover around near record low levels and will probably remain there for at least the foreseeable future. People in the market for a new home or just a refinance of their existing mortgage likely won’t find a better opportunity to save hundreds of dollars a month in mortgage interest costs. But mortgage shoppers will be faced with a very important choice – fixed rate or adjustable rate mortgage? The differences are important because making the wrong choice could cost you a lot of money.
A fixed rate mortgage is just like it sounds. When you take out the mortgage, you lock in a rate that stays with you throughout the life of the mortgage and doesn’t change. An adjustable rate mortgage works differently. Depending upon the terms, you typically lock in a rate for a set period of time (usually one to seven years). Once that lock period expires, your rate begins to “float” meaning that your mortgage payment can go up and down every month with the movement in interest rates.
Adjustable rate mortgages typically offer slightly lower rates than fixed rate mortgages so you might be initially inclined to go for the ARM. Which way you should go may largely depend on how long you plan on hanging on to the mortgage.
If you only plan on staying in your house for three years, for example, you might find a cost savings going with the lower rate 3 year ARM and selling the house before the rate starts to float. If you plan on hanging on to your house indefinitely, the fixed rate mortgage might be the better choice since you’ll lock in a rate for the full term of the loan and remove the uncertainty of how much you’ll pay out of the equation. Plus, locking in today’s low rates would be a more cost-effective play since mortgage rates will almost certainly be higher in the coming years.
Making a wrong choice in the fixed vs. variable decision could end up costing you thousands of dollars or, worse, your home. Be sure you know how to make the right choice for your situation.
What else can I help you with?
What is the difference between a fixed second mortgage and one with a variable rate?
The difference between a fixed second mortgage and one with a variable rate is that fixed second mortgage has a fixed rate and is commonly thought of as safer than a mortgage with a variable rate.
What is the difference between fix and variable mortgages?
The difference between fixed and variable mortgages are that in a fixed mortgage, the rate can not change. In a variable mortgage, the rate changes with time.
How can one sort through variable rate mortgages?
Variable rate mortgages are mortgages that are not fixed. A person would have to decide which mortgage they would like to try for, either a fixed mortgage rate or a variable rate mortgage.
What is the difference between a Halifax mortgage and a fixed rate morgtage?
A Halifax mortgage allows you to choose either a fixed or adjustable mortgage while a fixed rate mortgage only allows a certain interest rate to be available during the life of the loan.
The difference between fixed and variable inputs?
difference between fixed and variable inputs
What is meant by the terminology fixed mortgage rates?
A fixed mortgage rate is an interest rate that will not change for the term of the mortgage. This is in contrast to a variable mortgage rate which changes frequently based on the prime rate or other benchmark rate.
What is the difference between fixed rate and adjustable rate mortgage?
A fixed rate mortgage has its interest rate fixed (ie. stays the same) over the life of the loan. An adjustable rate mortgage (also called variable rate mortgage in Australia) has an interest rate that can be changed at any time by the lender. For example, if central bank interest rates go up then a variable rate loan will usually go up too. If the interest rate is fixed, then the lender can't change the rate even if their funding costs rise.
What are the average interest rates on mortgage loans in Canada?
The average interest rates on mortgage loans in Canada is about 4.000% depending on whether the mortgage loan is on fixed or variable rates. One can shop around to choose which bank will offer a competitive and lower interest rates.
Is mortgage payment a variable cost?
Mortgage payment can either be fixed or variable cost. A fixed cost means the interest rate charged on the loan will remain the same for the loan's entire term. A variable cost means the interest rate changes or decreases as time pass.
What is a balloon mortgage?
escalates with the variable rate? fixed rate unchangeable ocala,fl
How is a self certified remortgage different from a traditional mortgage?
A mortgage that is classified and listed as a certified mortgage is different from a traditional mortgage in that one has a fixed rate and the other has a variable rate.
Is there a cost savings to having fixed mortgage rates?
If the rates are down when you lock into a fixed mortgage rate, than yes, absolutely there are savings. If the rates are high, it's typically better to go with a variable mortgage rate.
