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Flexible Types Of Mortgages - Part 2
Fixed Rate Mortgages Home owners who want the security of knowing how much their monthly repayments will be regardless of movements in interest rates will likely adopt a fixed rate home loan. The interest rate on these loans remains fixed and will not move when market rates move. Fixed rate mortgages provide assurance that monthly repayment amounts will not change throughout the fixed rate period. These fixed rate periods usually last for a couple of years. Home owners who have a loan with a fixed rate period will be able to use the certainty to create a more stable household budget. Obviously, this is a big help to households that don’t have large incomes and a lot of extra money. Even slight increases in interest rates can make a big difference to household budgets. It can even send householders into bankruptcy which can lead to home repossession. People who are afraid of losing their homes through interest rate rises should consider applying for a fixed rate mortgage. The downside to fixing your interest rate is that you won’t benefit from decreases in rates. If the Reserve Bank lowers the official cash rate, lenders usually follow their lead and lower the rates on their variable lending products. Variable rate borrowers will benefit, but fixed rate borrowers will not. Borrowers with fixed rates, however, will still pay the higher rate. It is therefore important to carefully consider your options when trying to choose between a fixed rate product or a variable rate product. Variable Rate Mortgages As you have probably already guessed, variable rate mortgages are the opposite to fixed rate mortgages. These home loans have interest rates that can increase and decrease over time. There are no restrictions on how high the rate can go. There are also no restrictions on how quickly the rate can rise or fall. Obviously there is a risk that rates can rise to high levels, making your mortgage unaffordable. It is therefore a good idea to have savings set aside if you are going to apply for a variable rate product. Having cash reserves can come in handy if rates rise so high you are not able to meet your monthly repayments from your regular income. This type of home loan product is therefore only suitable to people who have cash reserve or who have a low risk aversion. If this isn’t you, then you could apply for this type of home loan if you feel that rates will not rise for some time. Alternatively, if interest rates decline, home owners with variable rates can save a lot of money. Their monthly repayments could fall substantially while borrowers with fixed rate products continue to pay the same payment they had before. Borrowers who believe that rates will drop in future should therefore consider applying for a variable rate mortgage. Article Directory: http://www.articledashboard.com Read the latest Mortgage News and stay in touch with the home loan market at www.moneynet.net.au/. www.moneynet.net.au/ |
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