Mortgage Best Rate

With the global credit crunch in the news on a daily basis, it’s a good time to take a look at your mortgage. But before you decide on fixed rate mortgages or on a variable rate mortgage its best to compare the pro’s and cons of each type so that you can make the right decision for you.

With your mortgage being one of the biggest long term financial decisions you’ll make, its best to get the decision right from the very beginning. Getting it wrong could literally cost you thousands.

The question is whether to consider fixed rate mortgages or a variable rate mortgage.

Fixed Rate Mortgages

Fixed rate mortgages are loan where the interest and thus the repayment are fixed at a certain interest rate for a certain period. The period varies but can be anything from two to five years to the length of the loan. The pros of fixed rate mortgages are:

• They provide certainty with regards to payments
• You can budget easily if you sign up for a fixed rate mortgage
• Even if the interest rate climbs, your payments remain constant

Cons of Fixed Rate Mortgages include:

• Your payments do not decrease if the rate decreases
• You cannot take advantage of market up and downs
• Initial rates on the fixed rate mortgages are usually higher than variable rate deals

Fixed Rate mortgages can help to cap your payments and they make it easier to budget. The best time to take advantage of a fixed rate mortgage is when the rates dip a little. You can then refinance your loan or mortgage with fixed rate mortgages and take advantage of the fact that rates will climb.

Variable Rate Mortgages

As opposed to fixed rate mortgages, the interest on a variable rate mortgage changes all the time. This means that when interest rates climb, so does your mortgage repayment.

The pros of this type of mortgage is that if rates fall, so does your repayments, but unlike fixed rate mortgages, it is very difficult to budget for payments which fluctuate. This type does however allow you to take advantage of changing market conditions.

If the current rates are high, then its best to go for a variable interest rate loan and then once the rates fall, to try to change it to fixed rate mortgages.