Fixed Rate Of Home Loan Vs Variable Rate Of Home Loan

home loan interest ratesDeciding whether or not to take out a mortgage or home equity loan is one of the most pivotal factors to consider when you are planning to buy or fix up your dream home. There are two main types of mortgage options: a fixed rate home loan & a variable rate home loan. Are you thinking about buying a home or fixing your current home up but you’re not sure about which interest rate to pick? Well, both fixed rate and variable rate loans have distinct features you need to be educated on before you decide on one.

Definition- the interest factor

First of all, let’s be clear on the definitions. The terms “fixed” & “variable” are mainly concerned with the interest quotient of the loans. A fixed rate loan implies that the rate of interest is decided during the time of contract and will stay unchanged throughout the entire loan period. On the other hand, a variable rate mortgage implies that the interest rate would alter according to changes in the market.

Security factor

If you want to play it safe with your mortgage or home equity loan, the fixed rate loan is the best option. When you are taking out a fixed rate loan, you are aware of the repayment value beforehand which won’t change. Thus, financial management of the loan becomes easy because you know what to expect. If you are a family man, the fixed rate option will probably be best. In the case of variable rates, you are never sure of the repayment value. The interest rate is generally on the rise and you are most likely going to face a bigger interest amount in future years which might affect your other financial plans.

According to studies among various mortgage lenders, people usually prefer to stick with a fixed rate mortgage, citing the security quotient. The very option offers the homeowners a sense of stability and certainty throughout their mortgage repayment.

Extra repayments

It must be mentioned that variable rate mortgage loans are better in terms of flexibility compared to fixed rate home loans. The fixed rate option is usually limited in regards to extra repayments, but the variable rate generally allows you to go on smoothly with your extra repayments. If you find yourself having extra money, you can channel that money to extra repayments which would help you pay down the loan earlier than your term. If you can repay your entire debt before the set term period, you have a lower risk of being affected by rising interest rates in the years to come.

Extra repayment withdrawal

The fixed rate mortgage option will not allow the borrower to withdraw extra repayments, but the variable rate mortgage permits the borrower to do this.

In conclusion, it can be said that if you want a safe, peaceful experience, the fixed rate option is great for you. But if you think you might want to make extra payments at some point, you might want to go for a variable rate loan.