Friday, November 21, 2014

What Are Your Best Options? Fixed-Rate and Variable-Rate Home Loans


When a buyer approaches the real estate market of today - the domicile market - they may become slightly upset regarding the many facets of a contract. And a lot of the advice regarding those choices may not be exactly right. For instance, the commonly accepted idea is that fixed rate mortgages are somehow better. This may not be words of wisdom for a large proportion of buyers out there. Yet it could be rock-solid advice for others.

Alternatives Considered

If you are a house buyer and you are intending to stay in the domicile for only a short length of time and interest rates are maintaining somewhat of a low; why not consider the cheaper adjustable rate mortgage? Also, if the market in which you are buying is volatile and you feel you can sell quickly when it gets hotter, go for the adjustable rate while the getting is good. Though there is comfort in the option of an adjustable rate mortgage, considerations abound.

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The Obvious Questions

Which way will the economic winds blow the market interest rates and thus blow a mortgage payment up or down. If interest rates should suddenly spike and you cannot meet your variable rate monthly mortgage payments, what are you going to do?

On The Other Hand

If you are pretty sure that you will be able to handle an interest rate spike upward, either by covering the payment easily or being able to sell the home easily, do not worry. If you are able to pay off the mortgage in five years or less, why worry at all. If you are sure you can unload the property easily, then there you go on your way out of the quandary.

The Major Issue

Which way the financial markets may move interest rates, especially housing interest rates, are the major concern over the long term. Choosing a variable-rate mortgage under the presumption that you will be able to sell your house quickly or that it will quickly appreciate in value is based on, well, presumption.

Bursting Bubbles

Whether considered locally or nationally, right now the housing market is flammable. Locally, housing markets may be experiencing a boom. Nationally they could be experiencing a bust. What if that turned around? Your half-a-million-dollar home may suddenly become worth a quarter-a-million. That is a lot of weird debt to have. Think twice or thrice before making decisions regarding variable or fixed mortgages.

Fixed-Rate Pluses

If you wish to stay in your house for quite a while, a fixed mortgage is probably your best bet. As the name insinuates, no matter what happens in the financial interest rate markets, your payments will stay the same throughout the life, or the maturity, of the mortgage.

Fixed-Rate Minuses

However, to accommodate the fluctuations of the interest markets, fixed-rate mortgages do usually have a higher interest rates than variable rate mortgages when initially contracted. Of course, if you contract the mortgage during a period of high interest rates - even particularly high - then they drop, you may rue having chosen that option.

Bottom Line

A fixed-rate mortgage may be the right choice as it is the clearest and usually the most secure. However, if you are playing the game and do not anticipate years in the same domicile, and if you can handle broad uspwings in the interest prices, a variable-rate mortgage could be the right decision for you to make.


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