Aug 14 2008
Mortgages revealed inside out
To own a house features high on almost everyone’s wish list. Turning this dream into reality was relatively easier in older times but now with real estate rates sky rocketing, making this wish come true without any financial aid or mortgage loan is very difficult. Providing respite in such situations are mortgages.
Mortgages are financial tools which allow individuals to finance their homes and also make the financial burden a little lighter for them. But before one embarks on the decision of availing it one must familiarize oneself with the kinds of mortgages available and then choose the one which best suits his needs. There are basically two kinds of mortgages available
- Fixed rate mortgage
- Adjustable/Floating rate mortgage
In a Fixed rate mortgage scenario the applicable rate of interest which will be charged for a pre defined time duration is fixed. Therefore, changes in the economy or any other such factor do not change this rate. The amount to be paid in principal and interest by the homeowner over the duration of the loan period is known to him. Hence, he is in a situation to chalk out his other financial needs accordingly. This type of mortgage is best suited for those individuals who get a good deal when the interest rates and low and wish to lock the interest rate for the entire tenure of the loan.
In the case of adjustable rate mortgage the interest rate payable by the house owner is not pre- determined and keeps on changing in accordance to the market situation. This type of mortgage allows the individual to make the best of fluctuating situations where, when the interest rate in the market dips to low levels it allows the individual to pay less than what he was doing initially. The major drawback of alternating rate mortgage is that the varying interest rates makes the due payment also vary hence not allowing much freedom for his other financial decisions.
While making a choice of selecting one of these options one should consider the present and the expected market conditions which could help him decide. Also one’s own financial health is a major bone of contention while making this decision.