Fixed Rate or Variable Rates For Mortgages

Choosing a house to buy is difficult enough without the adding confusion of having to choose a mortgage product, but whether you are getting a mortgage on a new home or remortgaging you will need to choose and the wrong choice could cost you thousands. A mortgage can be difficult to understand: the amount you actually get should be fairly simple this is what you are borrowing but the cost of the mortgage and the total amount you have to pay back will vary greatly. The interest rates you will be offered will partly depend on your credit rating and also on how big a percentage of the value of your house you are borrowing or if you have other collateral. Basically mortgage lenders charge you if their risk is higher.see it here

High risk means higher interest rates and a more expensive mortgage but it still pays to shop around, also the amount of time you pay a mortgage back over is important: the longer the more you will pay of course. When it comes to choosing a fixed or variable rate mortgage then things become even more complicated and you are in many ways taking a gamble: especially with a variable mortgage. With a fixed rate mortgage you will be given usually one rate for the entire term of your mortgage that won’t change, sometimes you will have an introductory low interest rate but you will still know what the cost of your mortgage will be beyond any doubt, as long as you don’t miss payments.

With a variable rate mortgage you are basically taking a gamble over whether your country’s official interest rate will increase or decrease over the course of your mortgage. So it is important to know how long your mortgage will be for and know what kind of state your country’s economy is in. Either the government or the central or reserve bank in your country will set interest rates as a macroeconomic policy to generally either stop inflation by increasing interest rates to cut spending or they will lower interest rates to increase spending and boost the economy. If currently the economy is weak but looking like improving then interest rates may well increase meaning you will pay more: if the economy is heading in to a downturn or is at a peak and doesn’t look like having its rate of growth increase then a variable rate may be your best option as interest rates could well come down within the course of your mortgage.

Don’t forget though that you may need a low interest rate to begin with even if you know interest will be higher later. You may know that you could well pay off your mortgage early or will at least be better of in future but also check whether you will be charged compound interest on the interest already added. If you have to pay compound interest then it may be cheaper to have a low interest rate to begin with and higher later rather than a fixed rate mortgage or a variable rate mortgage that is based on a high interest rate that may well fall.