Types of Mortgage Rates
A mortgage loan is basically taken against a property. In case you own a property you can keep the house as collateral and avail a loan to help you in times of financial crisis. Though a property with a good value can guarantee you a good mortgage loan, rates of the loan are often dependent on various factors like your credit ratings, personal assurance, etc. We take a look at the various mortgage rates that are usually available to the customer and the advantages or disadvantages of each.
Mortgage rates may vary depending on the type of loan and the duration of the loan. There are basically three types of mortgage rates, these are-
# Adjustable Mortgage Rate
# Fixed Interest Rate
# Variable Interest Rate
There are numerous mortgage companies which offer refinance that involves obtaining a new mortgage loan on a property that is already owned – and that is often to replace existing loans against the property. It is a good time to refinance when the mortgage rates are low.
One of the major benefits involving refinancing is the fact that it can save the monthly payment of an existing loan. Lock-in rates are another very interesting schemes these companies offer.
The interest rate of a mortgage loan is fixed and that does not change, and based on the changes of an underlying interest rate index, a variable interest rate moves up and down.
An interest rate may change in case of an ARM based mortgage loan; which is usually in response to changes in the Treasury bill rate or prime rate. The mortgage holder gets the protection by a maximum interest rate, which is called a ceiling; that is usually reset annually. Adjustable mortgage rates or ARM usually starts with better rates than fixed rate mortgages.
Two most common mortgage interest rates are the adjustable rate mortgage and fixed rate mortgage-
Fixed Mortgage Rates:
In case of ‘fixed mortgage rates’, the monthly payments and the principle for interest do not change throughout the entire tenure of the loan. The interest rates remain the same as long as the borrower is in a fixed term agreement. The borrowers can keep a track of the exact amount of their payments, which is an advantage of this type of mortgage interest rate.
This way, through a fixed mortgage rate, borrowers can manage their personal budget very easily.
It is also advisable to have a fixed rate mortgage to protect oneself from the rising loan interest rate. The borrower cannot be sure that the loan rates will remain the same in the future, however, deciding on a fixed rate mortgage can save a lot of future headaches.
Adjustable Rate Mortgage:
On the basis of an index, the mortgage interest rates of an adjustable rate mortgage are adjusted from time to time. When there is a downward fluctuation in the interest rates, it is advisable to go for adjustable mortgage rates. For example, there might be a scenario when the adjustable mortgage rate is much lower than the fixed rate mortgage. In the above scenario, it is much better for a borrower to apply for an ARM mortgage rate, as the monthly payment would decidedly become much lower.