Adjustable-Rate Mortgage Payment
The newspapers nowadays abound with the advertisements on mortgage products that come with an adjustable rate of interest. These advertisements highlight the interest rates which seem to be very low. And at times, it seems to be too good to be true. Let us know more details about these mortgages with adjustable rates and see for ourselves if this interest rate is really low.
Adjustable rate mortgages are the products where the interest component varies with time. Depending on the market situations, the interest rates may fluctuate. It is possible that these rates may either go down or even go up. Depending on how these interest rates change, the financing companies generally keep adjusting the repayment period or the monthly payment to match the interest rate.
There are some financial products in the market where the interest rate vary up to a certain level and stay there for a particular period. After that period is over, the rates may change again. One important thing to note here is that if you choose an adjustable rate mortgage, it is difficult to predict what your future monthly payment would be.
It is true that the rate of interest charged in case of an adjustable rate mortgage is lower than the fixed rate mortgages. However, in the long run, it becomes difficult to assess if this will work in your favor or not. If there are such uncertainties with an adjustable rate mortgage, how does one decide if this is a right product?
Actually it depends on the financial status of an individual. A mortgage taken on an adjustable rate of interest allows a person to avail of a higher mortgage amount, especially if the person is salaried and has a fixed source of income. With adjustable rate of interest being lower, the monthly payments are lesser and hence it is easier of a person to pay it back. Also, given the current trend, it seems unlikely that the interest rates will increase in the longer run.
Hence it is very likely that in the long run, an adjustable rate of mortgage could work out to be cheaper than a fixed rate of mortgage. However, there is no guarantee to this and it is possible that the interest rates may move up. And this could change the entire scenario. However, there are some ways to reduce such a risk.
You can opt for an adjustable rate of mortgage if there are chances of your going up in future. This will ensure that in case the interest rates increase, you will be able to cover up for it. Also, if you are planning to on the property for a short term, an increase in the interest rate would not matter much to you.
Adjustable rate mortgages are the products where the interest component varies with time. Depending on the market situations, the interest rates may fluctuate. It is possible that these rates may either go down or even go up. Depending on how these interest rates change, the financing companies generally keep adjusting the repayment period or the monthly payment to match the interest rate.
There are some financial products in the market where the interest rate vary up to a certain level and stay there for a particular period. After that period is over, the rates may change again. One important thing to note here is that if you choose an adjustable rate mortgage, it is difficult to predict what your future monthly payment would be.
It is true that the rate of interest charged in case of an adjustable rate mortgage is lower than the fixed rate mortgages. However, in the long run, it becomes difficult to assess if this will work in your favor or not. If there are such uncertainties with an adjustable rate mortgage, how does one decide if this is a right product?
Actually it depends on the financial status of an individual. A mortgage taken on an adjustable rate of interest allows a person to avail of a higher mortgage amount, especially if the person is salaried and has a fixed source of income. With adjustable rate of interest being lower, the monthly payments are lesser and hence it is easier of a person to pay it back. Also, given the current trend, it seems unlikely that the interest rates will increase in the longer run.
Hence it is very likely that in the long run, an adjustable rate of mortgage could work out to be cheaper than a fixed rate of mortgage. However, there is no guarantee to this and it is possible that the interest rates may move up. And this could change the entire scenario. However, there are some ways to reduce such a risk.
You can opt for an adjustable rate of mortgage if there are chances of your going up in future. This will ensure that in case the interest rates increase, you will be able to cover up for it. Also, if you are planning to on the property for a short term, an increase in the interest rate would not matter much to you.