Fixed Rate Vs Variable Rate Home Loan: Which One\’S For You?

Fixed Rate VS Variable Rate Home Loan: Which One\’s For You?

by

Craig Reese

There are two main types of home loans: the fixed rate and the variable rate loans. Both have their own distinct pros and cons, depending on the preferences of the borrower. Accordingly, it would be beneficial if you know the various aspects of each loan type in order for you to make the right choice.

The Fixed Rate Loan

A fixed rate home loan is one that sets a fixed interest rate for the home loan starting from its approval until it is fully paid. The rate will not change–although interest payments may differ–depending on the principal amount owed. Again, it is only the rate which remains fixed, and not necessarily the monthly payments.

Pros: the main advantage of a fixed rate home loan for that matter is that it prevents the borrower from incurring any unwanted \”surprise\” interest rates as the rates remain constant. As it is, you can prepare your budget accordingly to accommodate loan payments.

Cons: qualifying for a fixed rate home loan is usually harder. This holds most especially true when the fixed interest rates are high as it usually results to more affordable monthly payments. And though you\’ll be paying for a fixed interest rate, its affordability will have to depend on the loan terms. In some cases, the monthly payments are more affordable, but the total overall cost is significantly higher compared to other terms. To get the best option, talk with a mortgage broker in a location near you.

The Variable Rate Loan

A variable home loan, as its name implies, does not charge a fixed interest rate. The amount imposable actually depends on the market. At first, this type of loan starts out with an interest rate lower than the costs of fixed rate loans. Over time (and depending on the terms), the former would then cost higher than the latter.

Pros: the initial payments for this loan type are lower. Being so, borrowers can qualify for larger loans and even enjoy lower interest rates (if the market dictates) without the need for refinancing.

Cons: the interest rates for this type of loan, being variable, means you run the risk of paying for higher interest rates in the future. Lower interest rates are usually imposed at the start of the loan, but depending on the market, your fees may go up based on the terms agreed upon and the economy.

Indeed, choosing the right loan can be quite complicated. To make the right choice, consult with a mortgage broker. By doing so, you\’ll be able to get a loan which can actually bring more financial benefits and reduced risks.

The author writes about

home loans

in Rockingham, Baldivis and Kwinana and anywhere in Australia at

scribd.com/homeloankwinana

Article Source:

ArticleRich.com