Difference Between Fixed and Floating Rate Mortgages

What is the difference between the fixed rate vs. variable / floating rate mortgages• For most people looking to buy their property with home loan, this question comes up all the time. When you look at the bank's posted rates you usually see interest rates for many different terms for fixed and variable interest rates. For most, the choice is always the same and that it's a fixed rate mortgage but you do have options.

And although the fixed rate mortgages are the easiest to understand they are not always the best choice.

The difference between the fixed rate mortgage and the variable rate mortgage is in how the increase rates will be set. The fixed rate has an interest rate that is set based on the bank's interest rate around the time you arrange that mortgage.

The variable rate mortgage will be based on what the bank rate is and fluctuates over the life of the mortgage. So, do you know which one you want to get.

You will want to do as much research as you can to find out about fixed rate vs. variable rate mortgages and which one is right for you.

The more you know the easier you will be able to decide which one you want to go for. Here are some of the things that you need to know about each type.

Fixed Rate Mortgages

1. This type of mortgage is based on the bank's rate around the time the mortgage is set-up and the rate is fixed for the first few years of the loan term / tenure.

2. With the fixed rate you will have a set rate for the first 3, 5 or 10 years depending on the package.

Variable Rate Mortgages

1. These mortgages are becoming more popular these days with mortgage hunters. This type of mortgage is better for higher risk threshold customers. If you have this type of mortgage you will have to hope that the bank rate will remain stable.

2. This type of mortgage will depend on the bank you use and the bank rate. Variable rate mortgages can save you a lot in interest over the life if the mortgage, but your payments will fluctuate up and down with the market.

3. Variable / floating rate depends on the changes of BLR, MLR or FDR rate (depending on the bank you choose the mortgage from).

These are not all of the things that you need to know when it comes to fixed rate vs. variable rate mortgages. They are the most important ones though. You want to go online and do as much research as you can. It is important to understand the difference between the two. So always take the time to learn all you can.

You need to know how the fixed rate mortgage and the variable rate mortgage will fit your lifestyle and your financial needs. By doing your research you can quickly figure this out. That way you will be able to better able to make a decision about which type you should have.

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