Fixed rate mortgages and variable rate mortgages are the two main types of mortgage payment options. While there are multiple categories under these two types, the first part of your plan when looking for a mortgage is to determine which type you are going to go with. There are a couple of differences between the two types of mortgage payment plans that you need to know about.
The main difference between these two payment options really just comes down to the interest rate itself. A fixed rate charges a set amount of interest that will not change over time. This can be a significant boon to those that know how much they are going to be making within this time frame.
This means that you won’t have to worry about rates rising at all. However with this type of rate, the timescale for when this needs to be paid off is set to 15, 20, or 30 years. This could mean an extra decade of debt, just to keep the monthly payments to a lower cost.
Variable rate mortgages have a fixed state of time during which the original interest rate remains consistent, after which the rate adjusts at a predetermined frequency. This can really help those looking for a short-term payment option, but after the initial interest rate period is gone, the prices can more than double.
There are also many smaller factors to look into with variable rate mortgages, such as Adjustment Frequency, Margins, Caps, and Ceilings, which can all be looked at while making the mortgage plan.
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