If you are considering refinancing your mortgage or you just need a lower monthly payment, there is probably one question you are asking: what is the difference between an adjustable rate loan and a fixed or variable interest rate home loan? The answer is simple. However, it is also important to understand that both have their own advantages and disadvantages.
An adjustable rate loan allows you to adjust the interest rate based on the federal funds rate; the lower the interest rate, the higher your monthly payment will be. However, you will have to pay the higher interest rate at the beginning of the new mortgage term. An adjustable rate loan can be a good choice if you can’t qualify for a fixed interest only loan. The fixed interest only loan requires you to make your initial payment, regardless of whether you qualify for the lower interest rate or not.
Variable interest rates are not tied to the Federal Reserve’s base rate. Instead, they are set based on financial markets around the world. This means that when the Federal Reserve raises interest rates, the fixed interest only loans will automatically change as well. For instance, when the Federal Reserve raises interest rates, they have a great impact on home loan rates. In order to determine whether you qualify for a fixed or variable interest rate home loan, you will first need to determine how much you are going to pay on your monthly mortgage. You will then find out how your mortgage lender will adjust the interest rate and if they will charge additional fees such as prepayment penalties.
A fixed interest only home loan is a good choice if you can’t qualify for an adjustable rate loan but want the convenience of adjustable interest only home loans. Your fixed interest only loan will be fixed for the entire term of the mortgage.
It is important to remember that a variable interest rate home loan has its own set interest rates, and you can get additional fees from your lender depending on how high they go. With a fixed interest only home loan, your lender will not change your interest rate until after you have paid your initial monthly mortgage. With a variable interest rate home loan, your lender may increase your interest rate up to two percent a year after you have already made the payment. So, it will be important to know which you prefer in order to choose the correct loan for your circumstances.
Whether you choose an adjustable rate or fixed interest only home loan, you are guaranteed the convenience of a lower monthly payment; however, your payments will remain the same until you are completely out of your home loan. In addition, a variable interest only home loan does not have to be renewed each year.