Fixed or adjustable rate mortgage?

This article will help you decide if fixed or adjustable rate mortgage is best for you.

08:02 24 June 2013

Interest rate is one of the most important factors that borrowers take into consideration when choosing a type of mortgage. The two most popular choices are fixed and adjustable rate mortgage.

Fixed Rate Mortgage

This type of mortgage offers the borrowers security and stability as the mortgage rates and monthly repayments will stay the same for the entire term of the loan. This means that if a loan has 30-year term, the borrower will pay the same amount every month for the next 30 years. The biggest advantage of this option is that borrowers are shielded from any sudden changes in mortgage rates.

Adjustable Rate Mortgage

With this option, borrowers pay a lower initial interest rate. The adjustable rate stays the same for a pre-determined period of time. After that, it will be adjusted according to the index that it is attached to. The adjustments are applied at pre-arranged intervals.

The borrower can expect the monthly mortgage payment to change several times throughout the entire term of the loan. The benefit of this type of loan is that it gives the borrowers an opportunity to take advantage of low interest rates when the mortgage rates decline.