Do you feel selecting a loan type is too complicated and why do these loan types offer different mortgage rates? Well, this is the place where you should be looking for the answers. If you are buying property for investment purposes, renting it or your personal residence, chances are you would have to take a loan to finance it. Choosing a type of loan would be based on how much risk you can take and your income. Many of the people who apply for the loans face multiple rejections, which surely is an irritating experience. Also if it is your first time, you might need some professional help, like mortgage brokers which may give you professional advice for getting a loan at lowest rates possible. Learning some universal basics about mortgages may help you select a particular type of loan.
- The Variable rates: If you think the mortgage rates would be equal for all in all circumstances, you are mistaken. The bank generally selects the rate according to the applicant and many basic parameters. Not only your income but the value of your assets also affect the mortgage rates. More is the value of assets lesser would be the risk to the bank. A good credit rating will be based on your net value, which takes into account your income as well as your previous loans and their repayments. If you have higher unpaid loans, like car loans or home loans and lesser income, the rates are surely going to be high for you, as it is risky for the bank to give you a loan.
Loan rate could also be based on the amount of loan taken and the value of the property, and according to the market situation.
- Rejection: Applying for loan rates which you cannot get will lead to rejection by banks as they tend to get more careful with recent default in repayments. On the basis of the above parameters, judge where you stand and what kind of loan could be given to you. If this seems too technical to you, never hesitate to take professional advice or hire a mortgage broker to save your time and effort.
- Cheap is risky: A cheaper form of mortgage system is Adjustable rate mortgage or Variable rate mortgage (as is known in USA). Here, the loan is offered at a base rate, but the rate changes continuously according to the market conditions, where the risk is shared between lender and borrower. Here, the borrower assumes risk because of the fluctuating interest rates in the market. Surely the benefit will be assumed by the borrowers where interest rates fall and if it rises, the lender is at a high and vice versa. As there is much risk, these loans tend to be cheaper at base rates.
- Fixed Rates: These are much simpler to understand. The interest rate will remain same throughout the period of the loan. The borrowers have no uncertainty in their minds about the amount payable at the end of every period. This lets you plan your budget in advance and avoid any kind of risk. The rates, however are higher than the Adjustable rate mortgages.