02 Dec 2021

What are the Advantages and Disadvantages of Variable Interest?

In the early 2000s, interest rates for mortgages rose. Since home loans became more expensive, individuals stopped borrowing in large numbers. To encourage borrowing, lenders devised the variable interest mortgage. Since the introductory rate for variable loans is lower than their fixed-rate counterparts, it entices borrowers. 

Variable-rate mortgages provide three advantages and one disadvantage.  

The disadvantage of variable rate home loans is the possibility that interest rates will jump. To offset this reality, the borrower enjoys three benefits that the fixed-rate loan holder does not receive.

It’s possible to pay off the variable rate mortgage sooner than 30 years. When rates drop, that’s a great time to chip away at the principal. Send additional repayments to your lender with no penalties.

If rates drop far enough, it’s possible to refinance the mortgage. This provides the third benefit – savings. The fixed-rate home loan borrower enters into a contract with the lender. The rate remains fixed even during economic downturns. This provides attractive leverage during times of uncertainty and increasing interest rates.

However, if rates go against the fixed-rate borrower, they must remain in their contract. If they wish to refinance, they can. But they incur the break costs.

Mortgage House provides additional tools to offset interest rate costs such as the toggle account. 

Variable Interest Advantages and Disadvantages Conclusion

The variable interest mortgage has a disadvantage and several advantages. Mortgage House provides additional tools for this loan to help offset the interest rate charges. For more information, contact our loan specialists who also specialise in car loans.

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