Introduction to Mortgages
By L. Seeber
When seeking a mortgage, you should be aware that there are several different types. The following article describes fixed, variable, and capped mortgages.
Fixed – If you want to know what your mortgage payments will be for a predetermined period of time, consider a fixed rate mortgage. This type of mortgage will guarantee the amount of money you’ll pay for a specified period of time. Once that time period ends, your payments will revert to the lender’s standard variable rate.
One advantage of a fixed rate mortgage is always knowing exactly the amount of your payments.
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Should your lender's interest rate change, the interest on your mortgage will remain the same. If interest rates increase over the amount you are paying, you will save money. However, if the interest rate decreases below the amount you're paying, your payments will remain the same.
Variable – With a variable mortgage, the interest can go up and down as rates change. The rate may remain the same for months, or it could change several times within a year. The rate of interest on a variable mortgage depends on the base bank rate.
Capped – A capped rate mortgage has a maximum limit on the interest rate that you pay. If the lender’s standard variable rate dips below the rate you are paying, you pay the lower rate. Capped mortgages are usually for a term of several years – often five. However, it’s possible to get a capped rate for the life of the mortgage. If you think interest rates will increase, a capped mortgage will offer you protection. This makes it easier for you to budget.
The interest rate on capped mortgages is usually a bit higher than on other types of mortgages. Be sure to compare interest rates on all types of mortgages before you decide which one to take. Choose the type of mortgage that will be the most beneficial to you over the long term. |