FIXED MORTGAGE RATE VS. VARIABLE RATE LOANS

What is a fixed rate loan?

Fixed rate loans have a static interest rate that does not change over the loan term. Your monthly payment will be the same from month to month, and you’ll know up front how much interest you’ll pay over the life of the loan.

Many people prefer fixed rate loans because of the stability and security that they provide.

What is a variable rate loan?

Variable rate loans have an interest rate that “floats”, or changes, with the underlying index rate that it’s based on. If the index rate goes down, your monthly payment goes down with it. If the index rate goes up, your monthly payment goes up as well. You will not know up front what your total interest payment will be over the life of the loan.

Variable rate loans often stay fixed for a certain term before they begin to float. For example, Apex Lending offers a variable rate loan that starts with a low fixed rate for 7 years, which then fluctuates yearly based on the LIBOR (London Inter-Bank Offered Rate).

A variable interest rate can be a good choice if you plan to be in your home short term since it can minimize your interest payments during the first few years before the rate begins to float. It can also be an option if you believe interest rates will decline over time, resulting in lower interest payments over the life of the loan.

What is a variable rate cap?

A variable rate cap is the maximum that your interest rate can be, regardless of the index. Rates can also have a year-over-year cap, meaning the interest rate changes are limited from one year to the next, adding some stability to your monthly payments.

Reach out to our highly trained mortgage bankers for more details about interest rates and interest rate caps!