Variable Interest Mortgage Rate

An alternative to a fixed rate loan is the fairly obvious variable rate. These mortgage rates fluctuate with the economy, and reflect the probability that interest rates will fall over time. These rates might be lower than the variable rate rates to reflect the risk associated with interest changes, but it is important to remember that interest volatility can make it difficult to budget around a variable rate mortgage.

For example, if the economy were to suddenly take off next year, interest rates would go up, and borrowers with variable rates would suddenly find themselves with interest payments that had doubled over the course of the year. This is compared to fixed-rate borrowers that would still be paying the absurdly low price from the beginning of the year. So why would anyone ever want a variable rate mortgage?

If we look at loan rates, it’s important to remember that the banks are competing against each other by trying to offer low-cost loans. This means that, even if the offered interest rates are particularly high, banks will still need to keep their interest rates relatively low in order to stay competitive.

If a borrower has a fixed rate loan at a particular price, but then rates decrease greatly over the course of a year, it would be very easy for that borrower to go to another bank and have their loan bought out for a lower interest rate so that they can save money. In this situation, the original bank loses a client, and is not very happy.

Variable rates help out the client in situations where interest rates are particularly high because they allow them to benefit from rates that decrease over the course of the year. The bank, on the other hand, benefits by making sure that they are always offering a competitive loan rate, and is therefore better able to protect their ownership of the loan. This means that, when interest rates are particularly high, everyone benefits from variable rate loans.

Leave a Reply