One of the main decisions that many homeowners have to make is whether to choose a fixed rate or variable mortgage. Each of these options has its own general pros and cons. The circumstances of the individual and the mortgage market as a whole may also affect how cost effective these mortgages may be. Which criteria should consumers use to choose between a fixed rate or variable deal?
What is the Difference Between a Fixed Rate or Variable Mortgage?
A fixed rate mortgage will set monthly repayments at a specific amount. During the time that a deal lasts the homeowner will always make the same payment. A variable loan comes with repayments that may go up and down depending on any movements in the underlying market or lender rate to which the deal is tied.
Monthly Spending Budgets May Influence the Decision Between a Fixed or Variable Rate
Some consumers will choose a mortgage type based on how repayments influence their monthly spending. For example, those that want or need to know exactly how much their repayments will be may well opt for a fixed rate deal.
This is often the route chosen by first time buyers, many of whom are working with tight budgets and who like the security of guaranteed payment levels whilst they find their feet. Those that are not so concerned with needing to budget for an exact payment every month may find that a variable deal suits them better.
Market Conditions and Fixed or Variable Rate Mortgages
The effectiveness of fixed and variable rate mortgages is also influenced by external market conditions. In some circumstances, a fixed rate deal may be more cost-effective than a variable option and vice versa.
So, now you have an idea of the difference between fixed rate mortgage and variable rate mortgage. And it is time to get started in the mortgage industry, isn’t it?