Mortgage: Fixed vs. Adjustable Rate

When choosing a mortgage loan to take out, one of the main things you need to decide is the type of mortgage rate you are comfortable with the most. There are two main types of mortgage rate generally offered by lenders: fixed rate and adjustable rate. In this part, we are going to learn more about the advantages and disadvantages of each type briefly.

Fixed rate mortgage, as the name suggests, comes with a fixed interest rate for the entire mortgage term. If you are taking out a 30-year mortgage at an interest rate of 5%, for example, then the same interest rate applies to the entire 30-year mortgage period. With fixed rate mortgage, the amount of money you need to allocate for repaying the mortgage remains constant throughout the mortgage term. Should the market rate decreases, however, you may not be able to enjoy reductions on your mortgage rate.

Adjustable rate mortgage, on the other hand, offers an adjustable interest rate that follows the market interest rate. If the market rate decreases, then your mortgage’s interest rate will also be lower. However, if the market interest rate increases you will also have to cope with the extra interest. Worry not, because the government placed several key regulations to prevent the mortgage interest rate from increasing too substantially.

Now that you know the differences between these two types of mortgage rate, you can decide the best one that suits you more. You will have no trouble taking out the right mortgage that you can cope with easily.