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Variable rate mortgage is also known as “floating rate mortgage” or “adjustable rate mortgage”. It is basically a type of mortgage that interest rate paid on the outstanding balance varies according to a specific benchmark. Which one is better for you? It really depends on your financial situation.
Fixed Rate Mortgage:
It can be a good loan for you, if you want carefully budget your payment. With fixed rate home loan, you know exactly how much you need to pay for your mortgage. So you can make financial plan accordingly. The loan term for fixed rate mortgage can be up to 30 years.
Some lenders will punish you, if you make a prepayment for fixed rate loan. Even if you have the extra money, you will either have to pay a fee, or pay the full interest amount.
Variable Rate Mortgage:
Variable rate mortgage is more flexible than fixed rate mortgage, but it can also be risky in a rising interest rate market. Before you take out the loan, you need to plan your budget to make sure that you will be able to make payment to keep the interest rate down.
Fixed Rate Mortgage and Variable Rate Mortgage are the two primary mortgage types in the marketplace. You can talk to any home lender to find the loan that work best for you.
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