Variable-Rate Mortgages: Part 2
The variable-rate mortgage is much more flexible than the fixed-rate mortgage. This flexibility is both an advantage and disadvantage of the variable-rate mortgage at the same time. This flexibility enableshomebuyers to account for things such as bonus payments, expected inheritances and economic environments where interest rates are falling, in which case the interest rate and monthly mortgage payment can actually decline over time. Variable-rate mortgages also provide lower monthly mortgage payments for people who do not expect to live in ahome for more than a certain number of years and those who expect to be able to pay off their mortgages rapidly. But from the other side, variable-rate mortgage flexibility makes it harder for the borrower to choose the right loan. Costs aren't easily compared, interest rates vary significantly by lender, shifting interest rates make it difficult to predict future payments and payment adjustments can make budgeting a challenge. Variable-rate mortgages allow borrowers to have lower initial payments for a longer period of time. It can last anywhere from one month to ten years. The ability to choose such terms of the variable-rate mortgage is also what makes it so popular. Some of these loans allow the borrower to pay only for the interest rate during a certain time period. When the loan's principal comes due, the monthly payments increase a lot. If the interest rate rises, the new monthly mortgage payment may be more than double compared to the initial one. Note that if you want to make a prepayment or you want to refinance the loan, you may receive penalties with a variable-rate mortgage.