Fixed Mortgage Rates Vs Flexible Mortgage Rates

When you buy a new property through a loan, you are offered the choice of fixed mortgage rates on flexible mortgage rates. It is important that you analyze these two options clearly before taking a decision.

Fixed Mortgage Rates

In a fixed mortgage, the rate of interest that you pay on the loan would be fixed throughout the term of the loan. This means the amount of payment made will be same and there will be no hassles.

This would be an ideal mortgage plan to choose if you will be holding on to the property for quite sometime.

Advantages of Fixed Mortgage Rates

The main advantage of fixed mortgage is that your interest rate would be exactly the same whether the economy goes up or comes down. You can do careful budgeting and have absolute peace of mind. Your payments will remain constant and will not increase with the market trends.

Disadvantages of Fixed Mortgage Rates

There are certain vital disadvantages in this type of mortgage that you should know:-

• Like the name suggests, this mortgage is fixed and has absolutely no flexibility.
• When interest rates fall, you are still stuck with higher interest rates. You cannot even refinance as you have to pay penalty for the same.
• The rate that you pay will normally be a little higher than the adjustable rate mortgages.

Flexible Mortgage Rates

A flexible mortgage rate is normally lesser than a fixed mortgage rate. However, is the economy goes through ups and downs; the interest rate also keeps changing to accommodate that. Mostly, there is a predetermined range within which the movement occurs. That is, there is a fixed lowest interest rate and a highest interest rate that is determined beforehand.

Advantages of Flexible Mortgage Rates

The major benefit of a flexible mortgage is that you are paying lower rates in the beginning and your rate can even fall further depending on the market condition. Thus, in case you are not planning to hold on to your property for long, then a flexible mortgage will be highly advantageous.

Disadvantages of Flexible Mortgage Rates

One major disadvantage with this type of mortgage plan is that it is highly unpredictable and you can not be readily prepared for it beforehand. In a rising market, a flexible mortgage can entail heavy payments and can prove to be quite disadvantageous to you.

What to Choose?

Whether to choose a fined or a flexible mortgage rate depends on your own individual circumstance. If you plan to hold on to the asset for a long time and the market is rising, then a fixed mortgage rate may be a good option.

However, in most other situations, a flexible mortgage rate can prove to be more advantageous to you. So, do your ground-work carefully before taking the final decision.