Floating Rate Mortgage

When it comes to buying a home, choosing what type of mortgage to apply for can be confusing and sometimes difficult. There are many different types of lenders, banks, and mortgage brokers who will be able to provide you with a loan. You will also need to consider what type of loan you will be applying for as well as the length of the term of the loan. It is always a good idea to look ahead and start this part of the process early on. You should gather all of your financial information and look it over before making a choice of what to do.

The two main types of mortgage loans that are available are a fixed rate mortgage and a floating rate mortgage which is also referred to as a variable rate mortgage. Fixed rate mortgages guarantee that you will be paying the same amount each month for the entirety of your loan period. This is completed by locking in a certain interest rate throughout the length of the loan. A floating rate loan, also known as a variable or adjustable rate loan does not provide the guarantee that your mortgage payments will remain the same.

With a floating rate mortgage, the interest rate attached to the loan is subject to change as the economy and housing market changes. While each month you will pay the same amount towards the principle of your mortgage, the amount that you will pay in interest can fluctuate. There are a number of reasons why choosing floating interest rate loans may be the best choice for you. It has been shown that floating rate mortgages are easier to qualify for than fixed rate mortgages. For many people, choosing this type of mortgage is a necessity in order to qualify for the home they want to purchase.

Floating interest rate loans also commonly provide buyers with a lower initial interest rate than fixed rate mortgages. In some cases, these rates may be locked in for the first year of the mortgage and then subject to change after that. It is important to recognize that the interest rate of a floating rate loan can change dramatically and quickly. Often borrowers who choose a floating rate mortgage are caught off-guard when their mortgage payment drastically jumps. Professionals have started calling this “payment shock,” and for some people it makes it difficult to pay their payment for that month.

If you do decide to choose a floating rate loan, it is important that you are prepared for the possibility of a rise in your monthly payment. As long as you have set aside money in case this were to happen, the possibility of a payment change should not be too scary. It is when you are unprepared for that possibility that this type of mortgage becomes a little more precarious. Talk to a mortgage broker or other professional to discuss what your concerns may be as well as what the best option is for your specific situation.