Mortgage rates are extremely volatile. This is owing to the fact that they are dependent on a whole lot of market sources and therefore, fluctuate without much of warning. What I mean to say here is that the rate can get higher or lower with the passage of time – thereby leading to gains or terrible losses. This is how mortgage rates affect unsuspecting investors. These days it is highly common for investors to float or peg the interest rates. They do so by keeping in mind what they deem fit.
Now, it is imperative to mention here that there are numerous variations of mortgages. Let us discuss and delve into what is commonly known as fixed mortgage rates. Fixed mortgage rates work best for investors who like to avoid the rigours of fluctuating interest rates. In this type of rate, what primarily takes place is that the interest rate is pegged at a certain rate during the entire duration of the term of the given loan. Moreover, the additional cost of the property, the like of which are taxes and insurance, is liable to change. This change may be a result of various factors; nonetheless the principal as well as the interest payments remain unchanged till the time the loan matures. Furthermore, when it comes to fixed mortgage rates, they are never tied to an index but determined by an advertised rate. Also, the amount of loan, the compounding frequency and the mortgage term assists in calculating the exact mortgage.
Moving on, this sort of mortgage rate is available very easily for the duration of the loan in a few countries. However, in rest of the countries of the globe, fixed mortgage rate is made available only for a fixed period of time. The time may vary, like for example, it may only be 10 years and not more. Yet, fixed mortgage rates are exceedingly popular. This particular information is backed by statistics which throw light on how about 75% of the property owners go for fixed mortgage rate. If this sounds surprising to you, I am going to tell you why this happens. For most of the property buyers, fixed budget is indispensable. Therefore, they like to foresee the future in terms of the nature of their financial obligations. Under such a set a circumstance, security over profitability (or in other words, fixed mortgage rates) gets the upper hand. You might find it interesting to note that the initial monthly rates for fixed mortgages are significantly greater when compared to the floatable ones. But there is a reason for this too, so you do not need to fret. The lending institutions are more often than not led by the size of the perceived risk. As a consequence of this, though you might not be able to buy expensive homes, you will surely be protected from the forces of economy. The forces of economy, needless to say, can be harsh and highly volatile at times.