Home mortgage financing questions answered

When it comes to home mortgage financing its important that you understand the types of mortgage loans that are available and which type is in your best interest.

Today let’s look at both the fixed-rate mortgage and the variable rate mortgage.

With a fixed-rate mortgage, the interest rate you pay remains the same for the term of the mortgage. In other words, your monthly payment of principal and interest stays the same throughout the term. The advantage of this kind of home mortgage loan is that it doesn’t matter if the rates go up or down, you always know exactly home much your payments are – there are no surprises.

A fixed-rate mortgage is ideal for anyone looking for protection from fluctuation in interest rates. An added benefit is that a fixed-rate mortgage is the best kind of mortgage loan for those looking to simplify their personal budget.

A variable-rate mortgage also sometimes referred to as a floating or adjustable-rate mortgage offers the ultimate flexibility during periods of fluctuating interest rates. You see, the rate is based on prime and can be re-adjusted monthly to reflect the current rates. As a rule your mortgage payment stays the same but the ratio between interest and principal fluctuates. In other words, when the interest rates fall you end up paying less interest and more principal. When rates are on the rise, your interest amount will also rise and less of your payment will be applied to the principal.

It’s important to note that if rates rise dramatically, the original payment amount may not cover both the principal and interest parts of your mortgage. If that happens, any interest that is not paid would still be owed and you may have to increase the amount of your monthly payment.

You may also wish to look into a variable-rate mortgage that can be converted to a fixed-rate mortgage if the rates rise beyond what you’re comfortable with. These kinds of variable-rate mortgages are an excellent home mortgage financing option for those who like flexibility but also the power to lock in their rate for a specific term.