Financial institutes offer loans, keeping your personal property as collateral. The two most prominent types of mortgages include fixed rate mortgage and adjustable rate mortgage.
Fixed Rate Mortgage
As the name suggests, the rate of interest remains unchanged throughout the duration of the loan. So, the amount of monthly installment that you pay remains fixed. Usually, such loans are offered for 15, 20 or 30years.
1. Since the amount payable every month is fixed, it helps you to better plan your budget and expenses.
2. It also protects you against the fluctuating interest rates since the rate of interest remains constant throughout the repayment period.
1. If the rate of interest drops down, you still need to pay a higher rate of interest.
2. The monthly installments are usually high.
3. The rate of interest charged is high as you have to pay a price for protecting yourself against the potential increase in interest rates for the next 15-30 years.