Mortgage Types
In this article we shall give an overview of the types of mortgages.
There are many kinds of mortgages but we shall concentrate on the two common
types, which are fixed term and the other is the variable one.
A Fixed Term mortgage is where the interest rate for your (home) loan is fixed
for the life it and it does not change. This means an interest rate is set for
your home loan eg. 7% and the interest rate remain constant even if the market
rate changes.
A variable interest is where the interest rate for your loan changes as per the
interest rate set by the country’s financial governing body, like the FED in the
US & RBA in Australia, also called the central bank. If the central bank changes
its rate, so will your home loan rate.
Both of the above have pro and cons which is described below:
Fixed term rate
Pros:
·
Budgeting is easy as you know how much to commit
·
The interest rate does not rise when the market
rate rises
Cons:
·
The interest rate does not fall when the market
rate falls
Variable rate
Pros:
·
The initial interest rates tend to be lower than
the fixed rate
·
Interest rates fall when the market rate falls
Cons:
·
Interest rate rises when the market rate rises
·
Monthly payments tend to increase after a certain
amount of time