Fixes and adjustable rate mortgage
A type of mortgage loan purchased with the same rate of interest on the promissary note over the peiod of payback is called a fixed rate mortgage. It’s primarily advantage is that as the international interest rates and other economic indicators change, it will have no effect on the cashflow of the payback. With this type of mortgage several financial risks could be eliminated. We must note however, that interest rate won’t have any change in case of the decrease of general indices which could considered a disadvantage.
Some additional charges may be attached to this mortgage deal, because of its favourable interest conditions.
Opposed to a fixed rate mortgage an adjustable rate mortgage’s payback value can vary according to the economic indicators, therefore carries a considerably higher risk than the other. This risk, however gives the opportunity to have lower interest rates on our mortgage if global rates decrease. For example it is recommended to take this type of mortgage in the period of a recession peak, where interest rates are expected to decrease by time.
It is also often that bank offer a mix of fixed and adjustable rate mortgage, called as a hybrid mortgage. These types of special deals have a fixed rate of interest for an agreed or a previously set period of time, which is followed by a period with an adjustable interest.