The types or home mortgage rates, how to choose.
There are dozens of home mortgage rates and even more variations and hybrid mortgage rates. However the main mortgage rates are simple to understand and thankfully, also easy to explain. But let’s make sure we are all reading from the same hymn sheet and spell out some of the basics of home mortgages, that might seem like no-brainers but may require some explanation.
What is an interest rate? Interest rate is the percentage of the amount you have borrowed (the capital) you pay back to the bank or finance company that lent you the money. The interest rate is generally worked out yearly. However it is a point worth checking as some finance companies might try to confuse you with different terms of interest rate. For example if you read an advertisement that is selling a thousand dollar loan for 10% interest, that interest rate will mean that every year you will have to pay 10% of the capital you still owe. The first year it will be 100 dollars interest the second year it will be 10 per cent of the pending capital and so on.
What is an APR? An APR stands for annual percentage rate. It is a “universal” rate format of describing the interest rate of a loan. The benefit of the APR format is that you can compare different mortgage rates using the same standard. You can compare apples with apples and not get lost in the minutiae of different interest rate formats.
OK, now we have dealt with those two points lets continue with the main mortgage rates and how to choose from them.
The fixed mortgage interest rate.
This is the easiest mortgage interest rate to understand. The bank you choose to give your business, (more on how to do that in other articles) will give you an interest rate for the entire tenure (or length) of the mortgage. That means that you will know exactly how much you will pay every month for the entire mortgage. It is great news for budget control freaks who like to know what their expenses will be. It is also good for people on a fixed income that need to spread out their expenses evenly throughout the year.
The variable mortgage interest rate.
This interest rate varies as the national interest rate changes. Normally the finance company will attach a set amount of percentage points on the going interest rate. The going interest rate is decided by the government and is used as a control to fine tune the country’s economy. These interest rates have the benefit that they are generally cheaper. The risk for the bank is less as there is no promise of keeping a fixed interest rate for the duration of the loan and there is a guaranteed profit no matter how high the interest rises.
The adjusted rate mortgages combine the fixed interest rate with the variable interest rate. For a set period 0f time the rate is fixed after which it becomes a variable interest rate. This is good for people that need temporary security on the monthly payments but don’t want to pay the full buck of a fixed interest mortgage.