Home Buying Tools
Fixed vs. Variable Mortgage Interest Rate
This is a personal decision based on either how quickly you want to pay off
your mortgage or how much you you can afford for a monthly payment.
Some borrowers in their 40's and 50's like 15 year fixed mortgages so their
home will be paid for when they retire. Some borrowers cannot be
approved for a mortgage unless they accept a variable interest rate which is
lower than a fixed rate initially.
There are varying schools of thought on choosing mortgage terms.
In almost all cases generally, it's good to lock in "other people's money" at a favorable rate
when possible. For example, if interest rates are very low, try to
lock in a large sum for a long period of time if rates are expected to go
up. Financial planners may use another approach with the rule:
"if you can get a higher return somewhere else, borrow and then invest it."
For example, borrow with a lower variable rate instead of a fixed
rate, and then take the $100 or so less payment per month and invest it somewhere else where there is a
higher rate. This is extremely risky for the average person, as the
"somewhere else" is likely the volatile stock market
(or this money is just spent and not saved). Less risky, the same financial theory can be applied if you choose a 30 year
fixed mortgage, over a 15 year loan. Choose a longer 30 year mortgage with a
smaller payment than a 15 year mortgage, then take the difference and save it in
your 401k for example.
Another consideration of mortgage selection are "points." Average
published rates are most often for loans with sums greater
than $100,000 and with 20% for a down payment. Smaller or very large
loans may have a higher rate, other fees, or "points." A
point is an upfront, one-time fee, that equals 1% of the loan principle.
Multiple "points" can be charged per loan, which must be taken into
consideration.
Always seek professional financial advise before applying for
a mortgage. 30 year fixed rate loans at the lowest rate is the most
common choice for borrowers.Bankrate.com Online Query Tools:
15-Year or 30-Year Mortgage: Which is right for you?
Fixed or Adjustable Rate Mortgage: Which is right for you?
Mortgage Points Adviser: Which rate/points combination is right for you? |
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