A Comparison of Fixed Rate Vs. Variable-Rate Mortgages

Purchasing a good home in today’s society is a huge milestone. One of the most vital decisions you must make when buying a home is choosing between a fixed and variable-rate mortgage. Understanding the two mortgage plans available for you is important, especially for first-time buyers.

You should check out Great Southern Bank’s fixed-rate home loan for great deals on your home financing. This article will discuss fixed and variable-rate mortgage loans and their pros and cons.

What is a Fixed Rate Mortgage?

A fixed-rate mortgage is a type of home loan secured by presenting a physical property, which can be either residential or commercial. A fixed-rate mortgage also indicates that you and the lender will have to agree on the interest rate before the loan is disbursed, and the agreed rate will remain the same till the end of the loan term.

Pros of Fixed Rate Mortgage

Before you choose a fixed-rate mortgage, consider these benefits.

• You’ll have a clear understanding of what the lender’s monthly payment will be. 
• You won’t be worried about the lender’s rates going up, no matter the changing market situation.
• It is very easy to calculate the total cost of the mortgage rate.

Cons of Fixed Rate Mortgage

These are the drawbacks of fixed-rate mortgages.

• You won’t benefit whenever there’s a decrease in interest rates due to improved market conditions.
• You’ll need to refinance to receive a lower rate, which can cost additional fees.
• Fixed rates are sometimes higher than variable rates.

What is a Variable-Rate Mortgage?

A variable rate mortgage is a type of loan with an interest rate that can be adjusted over time due to market changes. Generally, variable rate mortgages usually have lower interest rates than the fixed rate at first. This is because they are a riskier option for you. So you should be aware of the potential risk of an increase in loan cost.

Pros of Variable-Rate Mortgage

Here are the advantages of variable rate mortgages.

• It may save you more on your mortgage interest rate when compared to a fixed rate.
• You will end up paying less interest when the interest rate goes down.
• Even when an interest rate increases, you may save more over a fixed rate.
• There are fewer penalties when you break or switch between plans.
• It outperforms fixed rates for savings.

Cons of Variable-Rate Mortgage

These are the disadvantages of variable-rate mortgage plans.

• Your payment can increase whenever an increase in interest rate may affect your monthly budget.
• Most variable mortgage plans aren’t transferable from one property to another once the property is sold during the loan term.
• The interest rate may increase during the loan term.

Buy Your Home with the Right Mortgage Plan!

Choosing between fixed-rate and variable-rate mortgages to finance your home could be a bit difficult. However, you must understand the benefits and disadvantages each will offer you as a home buyer. This is because both mortgage plans come with their benefits and potential drawbacks. So ensure you choose the option that best suits your needs and budget.