You may yell “Wow!” you say to your family as you hit the brakes on the car. “Did you see the mortgage rate those guys are promoting?” Your concerns are over you may be thinking. You basically got to lock in a rate like that for the next ten years and you are set.

Not so fast. That rate may not be the right one for you. Normally, the lowest available rate – and the one that makes the rate sign look great from the street – will be for a variable or adjustable-rate mortgage. This rate has the prospect to be like a roller coaster in the future. The posted variable is the rate you’re getting today and you won’t be able to predict what kind of ups and downs are ahead of you.

A lender will offer different rates for different kinds of mortgages. The rates are established dependent on financial risk; both to you and to the lender. When a client is willing to accept the risk, then he or she is rewarded with a lower rate. If the lender is taking on the risk (meaning that the rate is constant through the future), then the rate is higher. The longer the term, the higher the risk for the lender.

So how do you decide? You should choose fixed-rate mortgages because they require a low risk margin and are usually better choice for first-time buyers. Alternatively, ask yourself these questions when deciding: Do you need to know exactly what your payment is going to be over a long period of time? Do you want to avert the need to always watch the rates? Do you have less than 25% down? Should you answered “yes” to all, or most of these questions, a more conservative fixed-rate mortgage could be the better choice to you.

A variable or adjustable-rate mortgage is best suited to people who have a flexible budget and can support higher risk. You should also askyourself these questions: Do you constantly watch market conditions? Can you handle any sudden rate increases that could increase your payment? Do you have 25% or more equity in your home? If you answered “yes” to all, or most of these questions, then a variable or adjustable-rate mortgage might best suit your needs.

You could discuss with your mortgage broker if your institutions offer a particular promotional rate for the first few periods of a variable-rate mortgage. Also ask what your rate will be dependent on – prime minus 0.5% or 0.6% or on Bankers’ Acceptances (BAS) plus 1%. The latter is a new kind of adjustable-rate mortgage that has recently been presented to the marketplace. Most variables or adjustable allow you to exercise an option to “lock in” a fixed rate at any time for the remaining portion of your mortgage term or for a longer term.

If the uncertainty of a floating rate is going to give you stress, then you may wish for a fix rate over the term. Many people like having the the certainty of a fixed-rate mortgage. They know precisely how much they will pay over the term of their mortgage, and so they can plan accordingly and there are no financial surprises. If the rates do drop… and drop… and drop… you are committed to the rate that you have made. The advice is to have a mortgage broker help you decide which option best meets your needs or else do some research online to see what most people go with.

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