When you are shopping for a mortgage, the terms of repayment will include factors like fixed rates or variable rates. Mortgage rates are important because they determine the amount on interest that will be applicable to your monthly payments. For some people, fixed rates are much safer because of the stability they provide. Others may want to explore variable rates to take their chances with low rates of interests for the first few payments.

What is a fixed rate mortgage?

A fixed rate mortgage is a long taken from a lender that has a fixed period of time within which it has to be repaid and a fixed rate of interest. It would mean, every month the same percentage increase will be added to the principle amount of the monthly payment. This would ensure that, every month, you make the same amount of payment to the lender.

When should you opt for a fixed rate mortgage?

The first sign of whether you should opt for a fixed rate mortgage is in the market itself. If you observe that the interest rates are generally lower, then that would be the time for you to opt for such a rate. This would ensure that you will be able to take advantage of the dip in the market for the duration of your loan.

Furthermore, fixed rates are seen to be safer and more stable. This is because of the fact that the same amount has to be repaid every month. Another thing that you should take into consideration is the duration for which you want to live in the house. If you are planning on staying for a longer period of time, a fixed rate will be in your best interest. You will be able to secure long term financial stability because the risk factor is reduced significantly.

What is a variable rate mortgage?

A variable rate of interest on a mortgage is when the interest rate changes on the basis of the changes in the market. If trend dictates that interest rates become higher than you may have to give higher monthly payments. This is suitable for those who are able to handle the risky market.

When should you opt for variable rate mortgages?

If you plan on living in your house for a couple of years, or even months, then you should consider a variable interest rate mortgage. During the time that you are living within the house, the interest rate will be lower –according to trend they are always lower in the initial phases. By the time you have to change houses, you will be able to avoid high interest rates altogether.

Additionally, if you are fortunate enough to be in a position to handle the high rates in the longer run, you can benefit from the low rates initially and build up your savings.