Fixed or Variable Interest Rate Loan


Fixed Or Variable Interest Rate Loan | Which Is The Best Option For You

Fixed Or Variable Interest Rate Loans

Fixed or variable interest rate loan - which is the best option for you? While it's probably a stretch to say this is the age-old question, it is certainly one that haunts many individuals and couples looking for a home loan or refinance their current mortgage. Anyone who has ever applied for a loan knows that the interest rate is one of the most important factors in determining whether they accept a loan or continue to shop for more favorable terms. An important decision you will need to make is whether to opt for a fixed rate loan or a variable rate.

Fixed Rate Mortgage Loans

Fixed rate loan remain at the same interest rate over the duration of the loan. On the plus side, fixed rate mortgages make budgeting easier and provide security against sudden increases in the national interest rate. Conversely, should interest rates go down, you may end up paying greater interest than you would on a variable rate. However, borrowers can always refinance their mortgage loans should the rates fall in order to take advantage of falling interest rates. Fixed rate mortgage loans will almost always carry a higher interest rate (perhaps half a percentage point) than an adjustable rate mortgage. You pay this slightly hgher rate for the security of have a locked interest rate that won't increase over the life of the loan.

Adjustable Rate Mortgags (ARM loans)

Variable rate loans fluctuate in accordance with changes in the national interest rate. The loan is nearly always locked for an initial numbers of years as with a 3 year ARM or 5 year ARM, after which time the loan adjusts to current interest rates -- the loan can typically only adjust a certainly amount in the first couple of years. These loans are good for borrowers who don't intend to be living in a home that long. Say, for instance, that a young couple buys their first home but plan to start a family in several years. In all likelihood, they will need a larger home and will transition into this bigger house in order to comfortably live with their growing family. This the type of situation where a fixed mortgage loan is ideal. Finding the best rate ARM comes usually from shopping from several loan options.