Getting a home loan can be the hardest thing you’ll experience as an adult. It is highly recommended that you do proper research before deciding on a loan provider or the loan type itself. There are two kinds of loan rates: Fixed Interest Rates and the Variable Interest Rates. Both have their good points, both have their own drawbacks. Let’s have a closer look at them and see which one suits you best.
Fixed Interest Rate
Fixed Interest Rates mean that the repayment of the loans will be in fixed equal installments over the entire period of the loan. This means that the interest rate is not affected by any eventual market fluctuations. You also don’t need to look far since many fixed rate home loans that is best for you are available online, so remember to check that out.
• The interest will remain fixed despite any Market changes that may happen in the future.
• Perfect for the people who are on strict and tight budgets and want a fixed monthly repayment schedule, which is very easy to manage.
• The interest rates’ percentage points are slightly higher than the Variable Rate loan.
• If the interest rate decreases, the fixed rate loan will not get the benefit of reduced rates and the borrower will have to repay the same amount every time.
Variable Rate Loans are a loan in which the interest rate charged on the outstanding balance varies as market interest rates change. As a result, your payments will vary as well. The variable rate can rise or fall as the Prime Rate changes. This means that your payments will vary on a monthly basis.
• Significantly cheaper than Fixed Interest rates.
• Even if the rate goes over the fixed rate, it will only be for some period of the loan. The interest rates will surely fall over a long period and, thus, the rate can bring a lot of savings.
• The rates can change anytime. This may lead to some problems to those who are on a tight budget.
• If you prefer the consistency of knowing exactly what your monthly payments will be over time, you might prefer a fixed rate loan. You might also want to lose the risk of interest rate changes over time by selecting a fixed rate loan, in a way you could prepare yourself for any future financial issues you might come across.
In contrast, you might go for a variable rate if you want to take advantage of any possible savings, but have the financial flexibility to make higher payments and total interest in case the interest rates rise.
So what’s the best option?
Actually, there’s no right or wrong answer. Fixed or Variable, they all depend upon your personal situation and flexibility. Just go for one that suits your current situation. Remember, this may be a one-time process that you need to experience as a future homeowner. Trust me, it’s worth all your effort and sacrifice. Good luck!