From choosing a real estate agent to finding the right home, the process of getting a mortgage is rife with many different choices. If you’re investing down the road, it’s likely that you’ve heard about variable and fixed interest rates and are wondering about the differences between the two and how they can benefit you. While what will work best for you depends on your financial flexibility and market knowledge, here are some basics that will help you make a decision.
The Details on Fixed Rates
For many homeowners new to the market, the stability of a fixed rate is comforting because the interest rate will be set for the length of the loan period. This means your monthly mortgage payment will be the same and you will not be required to adjust your budget each month. While knowing your rate can offer financial security in a fluctuating market, it may actually end up costing more money down the road depending on what the rates are like over time.
All About Variable Rates
A fixed rate can provide security, but a variable rate is much like it sounds and will fluctuate with the market interest rate. This means that your monthly mortgage payment will not be fixed and in the event of market increases or decreases, your mortgage payment may change markedly. While the benefit of variable rates is that they can actually end up costing less down the road, they can be a burden for those who do not have market knowledge and are going to feel the stress of changing rates.
Choosing Between The Two
While it’s expected that interest rates will rise in the coming years, there are still no guarantees that variable rates will end up costing more than a fixed rate. This means that if you are comfortable with the fluctuations, a variable rate may be better, but if it’s consistency you’re looking for, you may want to choose a fixed rate. If you are struggling with financial stability month-to-month, a variable rate may be more economical over time, but a fixed rate will offer the security of knowing your costs.
There are benefits associated with fixed and variable rates, but it’s important to determine how comfortable you are with the real estate market and your finances before making a decision. If you’re currently in the market for a new home, contact your trusted mortgage professionals for more information.
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About the Author:
Babak Moghaddam graduated from University of Southern California in 1985. He entered the mortgage industry as a compliance auditor at the Bank of New York in 1986 and completed his masters in Business Administration two years later. After seventeen years in the traditional mortgage banking world Babak finally transformed this vision into his own practice in 2002 when he formed Charter Pacific Lending Corp, a mortgage company that has provided over $900 Million in residential real estate loans throughout Southern California. Babak and his team do things a little differently than other mortgage providers. They work as financial advisors, because they have come to realize that a mortgage is a very powerful financial tool. And just like any other financial tool, it should be managed as part of the overall financial management plan to reach every home owner’s long and short-term financial goals much faster. You can contact Babak for a free consultation and strategy session at (800) 322-1217 X103.