An adjustable rate mortgage, also known as a tracker mortgage or variable rate mortgage, is a type of loan in which the interest rate on the loan is based on an index, which reflects the cost of borrowing on the credit markets. The lender may offer an adjustable rate mortgage based on an index or its standard variable rate. Typically, these mortgages carry higher interest rates than fixed rate mortgages, which is why they are called adjustable-rate mortgages.
Variable-rate mortgages
A variable-rate mortgage, also known as an adjustable-rate mortgage (ARM), is a type of home loan. Its interest rate fluctuates with the market, depending on an index, which reflects the cost of borrowing in the credit markets. The lender may offer a variable-rate mortgage at their standard variable rate. This rate may vary by as much as one percentage point. But, it is always higher than the interest rate on a fixed-rate mortgage.
Although the interest rates on variable-rate mortgages fluctuate every few years, they are usually lower than fixed-rate mortgages. Some borrowers like variable-rate mortgages because they are more flexible and have fewer switching restrictions than fixed products. Some SVR mortgages do not charge an early repayment fee. But some of them can’t compete with fixed-rate mortgages, and you have to weigh the risks of a variable-rate mortgage against the advantages and disadvantages of a fixed-rate mortgage.
The main risk with a variable-rate mortgage is the risk of interest rates rising. Although the interest rates are predicted by many financial experts to stay low until 2016, it is possible that the rate of interest can increase and force you to make more payments than you can afford. Therefore, it’s crucial to consider your ability to manage the payments, and a mortgage repayment 주택담보대출 calculator can help you decide which option is right for you. So, what are the risks of a variable-rate mortgage?
Interest-only adjustable-rate mortgages
An interest-only adjustable-rate mortgage is a type of loan that allows borrowers to pay only the interest on their mortgage for a certain period of time. This period typically lasts for three to ten years. When this period ends, the monthly payment increases, as will the interest. An interest-only adjustable-rate mortgage may be better for someone who wants to pay off their entire mortgage quickly, but doesn’t want to worry about the monthly payments during this time.
An interest-only adjustable-rate mortgage may seem like an appealing option, but there are a few pitfalls to be aware of before signing up for one. The first is that interest-only mortgages are highly risky. The rate is fixed for the first few years, but will change every year. After ten years, you’ll pay an additional $82%, making your overall repayment amount nearly $33,000 higher. This loan option, however, may provide you with a lower monthly payment for a few years, which will give you more financial flexibility as the loan amortizes.
Another concern with interest-only ARMs is that you can easily end up paying more interest than you actually owe, which can result in a higher monthly payment. Because interest-only ARMs can increase your total interest cost, they are a bad choice for long-term housing. However, interest-only mortgages are more flexible than fixed-rate mortgages, so it’s important to shop around.