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Fixed or Adjustable? How to Choose Your Mortgage Loan

A mortgage loan is a type of loan used to buy a property, where the property serves as collateral. Deciding between a fixed or adjustable interest rate is the most crucial factor when applying for a mortgage loan. While adjustable-rate mortgages come with higher risks, their initial low rates make them attractive, especially with the rising rates. At the same time, fixed-rate mortgages offer more peace of mind during the long run without the potential rate hikes of adjustable-rate loans. 

In this article, we’ll explore both options to help you make an informed decision that meets your financial goal.

Mortgage Loan Rate Types

The table below explains the key differences between adjustable and fixed mortgage loans.

Adjustable-Rate Mortgage Loan Fixed-Rate Mortgage Loan
  • Loans with adjustable rates may have changing interest rates over time. Although some adjustable-rate mortgages may experience more frequent fluctuations, the rate typically adjusts once a year in accordance with market conditions.
  • These mortgages usually have a lower interest rate initially, and because of this, they appeal to the borrowers more.
  • A fixed-rate loan’s interest rate does not change throughout the loan’s duration. Regardless of shifts in market conditions, the interest rate remains the same throughout the tenure. 
  • For borrowers who value the stability of a predictable monthly payment, fixed-rate mortgages are usually a better choice.

 

Pros and Cons of Adjustable Vs Fixed Rates 

  • Adjustable-Rate Mortgage Loan

Advantages Disadvantages
  • The advantage of this form of mortgage is that it has a lower initial interest rate, which results in a shorter-term reduction in monthly payments.
  • Additionally, because the interest rate depends on the market’s state, these loans may momentarily qualify as low-rate mortgages if interest rates go down.
  • The unpredictability of upcoming monthly payments is its main drawback. It can be challenging to predict what your monthly payment will be in the future because the interest rate is subject to yearly change. 
  • Budgeting for the future can be difficult.

  • Fixed Interest Rate Mortgage Loan

Advantages Disadvantages
  • The predictability of a regular monthly payment is a fixed-rate mortgage’s main benefit. You will always be aware of the exact monthly payment because the interest rate stays the same for the duration of the loan.
  • Furthermore, even if interest rates rise in the future, the monthly EMIs will remain the same.
  • Fixed-interest mortgage loans typically have higher starting interest rates.
  • Borrowers on a tight budget may have an issue with fixed LAP loan interest rates

 

What to Choose? Adjustable or Fixed Mortgage Loan

The decision of whether to get a fixed-rate or adjustable-rate mortgage loan could significantly affect your financial future. 

Adjustable mortgage rates might be the better option if you aim to have low monthly payments in the near term and are ready to live with the uncertainty of future monthly payments. 

Low-rate adjustable-rate mortgages reduce monthly EMIs because they have higher initial rates. Thus, making it easier if you are just starting your career or want to buy a home that costs more money. However, adjustable LAP loan interest rates can rise over time, meaning larger EMIs.  

On the other hand, a fixed-rate mortgage might be more suitable if a consistent monthly payment is what you value and you are prepared to pay more for assurance. In addition, home loans with fixed interest rates guarantee that the monthly EMIs will not change. It facilitates budgeting and planning for future financial requirements. 

A fixed-rate mortgage can be better for those who intend to live in their house for an extended time. However, an adjustable mortgage loan rate might be a better option for those who intend to sell their property soon – potential buyers may find the house more alluring because of its lower monthly EMIs.

Conclusion

Understanding the difference between fixed and adjustable rates is the key step in choosing a mortgage loan. Carefully consider your financial situation and goals to make the right decision for you.

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