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What are the benefits and limitations of a fixed rate mortgage and variable rate mortgage?

mortgage rate

When it comes to buying a house for yourself, few people can buy it outright unless they’re millionaires. Therefore most buyers will inevitable take out a mortgage when purchasing a house to cover the rest of its payment. But should you go for a mortgage broker that has a set percent you pay back or one with a changing percent? We explore this in more detail.

What is a fixed rater mortgage?

A fixed rate mortgage is where you and your mortgage broker agree on a fixed rate you will pay back over a set period of time. An example of this would be paying back of your total mortgage over a course of 5 years. If your mortgage value is $200,000, you would be paying $3,333 per month. The peculiar thing with a fixed rate is that with this kind of mortgage, you are paying off both the interest from the mortgage loan and your debt, so after the fixed time period (e.g. 5 years) you don’t owe anything to your mortgage broker. There is usually a special rate that incentivizes customers. However, if you try to opt out early, you will have to pay a heavy fine, which effectively locks a customer in for a committed payment.

What is a variable mortgage?

A variable mortgage is where you pay according to the US economy and how healthy it is. If the economy is looking profitable, your interest …

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