The Risks Of Choosing A Variable Rate Mortgage
A variable rate mortgage can allow you to purchase that new home with lower monthly payments. But, these lower payments will only last for a set amount of time. Initially, you’ll only be paying on the interest assessed on the amount of money you borrow. Once that time is up, your payments will increase as you start to pay toward the loan balance.
Along with a mortgage payment that is eventually going to increase, there’s another risk involved in getting this type of bank loan. Since you are only paying on the interest, the amount of your initial payments can also increase with increases in interest rates.
Even though the initial payments might be smaller than with a traditional home mortgage, if interest rates rise, you may have trouble making your payments on time. And, if this happens the bank can foreclose on your home and sell it to repay the loan.
Whenever possible you should always try to get approved for a fixed rate mortgage instead. With a fixed rate mortgage you won’t get any surprises, your payment will remain the same over the term of the bank loan. And, there’s less chance of you defaulting on your mortgage and losing your home.