A vital question that faces most homeowners at some stage is whether or not to opt for a fixed rate or variable mortgage. The age-old weighing up of security over potential savings is one that has plagued buyers for decades, and one to which there is no definitive right or wrong answer. Both variable and fixed rate mortgages have advantages and disadvantages, but with the right financial advice it should be easy to understand which type of mortgage relates to your situation and can provide you with the best chance of financial freedom in years to come. The standard type of mortgage is variable; that is the rate of interest repayments is variable against the Bank of England base rate. An alternative to that is the fixed rate mortgage, which sets a fixed rate of interest to provide buyers with a guarantee of exactly what price they will be required to pay for their borrowing. The main question faced by prospective borrowers is whether to gamble and secure a rate, which may ultimately be higher throughout the duration of repayment, or whether they want to rely on the base rate for lending as a guide to the extent of their repayments. Either option could be considered a gamble against the interest rates, and both can provide their own financial benefits at the end of the day. With a standard type of mortgage, economic security is the order of the day, and if the economy goes through a stable period, you are more likely to have to repay less over time. While rates are low, that is also the time to secure a fixed rate mortgage, securing your interest rate forever more to avoid the insecurity of relying on a fluctuating rate. The problem with fixed rate is that the rate is generally fixed at a proportionately raised rate above the base rate before it is fixed, therefore it can prove to be expensive if the economy ultimately performs well over the duration of the mortgage repayments. One of the major benefits of a fixed rate mortgage is the ability to budget accurately. With the uncertainty of a variable mortgage, it can often be hard to manage your finances, and if interest rates increase in may eventually find it impossible to live within your planned budget, making for a tough financial situation ahead. However, the fixed rate mortgage guarantees a level of repayment which, although it may be high, is at least fixed to allow secure budgeting over the longer term. Either way, selecting a mortgage comes down to your individual circumstances, and although it may be a tough decision it is important to make sure you fully consider the available options before committing yourself. It comes down to a choice between security and the potential for savings over the term of the mortgage. With appropriate guidance and advice, you should be able to make the decision that best suits your needs and circumstances to provide you with the best option.
Source: http://www.ArticlePros.com/author.php?Graeme Nicholson
|
