Variable Rate Mortgages
Variable mortgage rates are the rate of interest that are currently in the market place they are the lowest market rates for anyone to pay their mortgage installments people with variable rate of interest will pay the lowest installments during term of lower interest rates. It is said if you want to pay your mortgage fast keep it on variable “ and keep paying the same amount but keep your interest rate variable this will put more money towards your principal and less towards your interest only if you think the market is on a lower side and will stay there for few years because the more the interest rates falls the lower interest rates you will be paying. Consult your mortgage professional Amit Dhingra for best advice.
Here is an example a person was paying 5.00 % fixed rate of interest on his loan of $500000 his monthly installments was $2908 and the total amount he was supposed to pay in interest with in the term of 25 years of amortization was $3,72,407.48 now when the interest rates are low he got the variable rate of interest of 2.59% his monthly installments are $2262.30 and his total interest for the 25 years term will be $178690.92. if he decides to pay the same amount that he was paying while his interest rates were 5.00% that was $2908 per month ever month he will be paying $646 towards his principal amount which will lower his principal outstanding if the interest rates remain at record low for next 3 years his contribution to his principal amount will significantly reduce his mortgage amortization period and he will pay of his mortgage faster.
Disadvantages of variable rate mortgages
Variable rate mortgage has advantages but also disadvantages for many people variable rate mortgages could be risky because as soon as the interest rates increases your monthly installments increases as well if the family is living with in their budgets and have a set amount of income a change in mortgage can be a significant blow to the family budget of the house hold and if the savings are not enough the house owners can go bankrupt. For families that have limited income variable mortgage might not be a good idea it is better for them to go for fixed rate of interest this way they will know that they are paying a set amount of certain period of time. Variable rate of interest is good for those who have enough income for disposal or where a increase in the amount of mortgage per month won’t make any difference to their household budgets.
This often tumbles the market in real estate because when the interest rates are low hosing market goes on boom and people buy houses for over their buying power but when interest rates increases the same property becomes un affordable forcing the limited income home owner to either sell the property or go bankrupt and when number of bankruptcy or property is on sale the housing market tumbles.