What are the risks of variable rate mortgages?
MAY
13, 2022
With mortgage rates going up in the first few months of this year, I can understand why home buyers in the next few months would be considering choosing a variable rate mortgage instead of a fixed rate. One of the main reasons why anyone would take on a variable rate is to save money.
Variable-rate mortgages can change in line with changes in the prime rate, unlike fixed-rate mortgages.The rates are much lower than a fixed rate mortgage and there are benefits that could be beneficial to some buyers,But they could also cost you a lot of money if you do not plan it well...
Many people who take out variable rate loans will end up paying a high prepayment penalty if they try to pay off the loan early because their plans changed. Most variable rates have an allocated time when the rate does not change. This has to be planned carefully, otherwise you may end paying penalty fees. I recommend that all first time homebuyers get help from a mortgage broker or their real estate agent who can help them understand all the short and long-term costs of owning a home and a mortgage.
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Today, we'll talk about What are the risks of variable rate mortgages?
Bottom line is: Most first time homebuyers will need to take out a fixed rate mortgage for a certain amount of time. If you are buying your first home, you should consider a shorter term ( 2 years or 3 years) fixed rate mortgage rather than a 5-year solution.
When you are signing up for a mortgage, it is essential to know that there are interest rate differentials between fixed and variable mortgage programs, depending on which lender you go to and what kind of mortgage you go for.It is imperative that you speak to your mortgage provider or real estate agent who is representing you, and ask questions about the rules and penalties that you must pay in case that you must move out early.
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