One aspect of the mortgage world that some people either seem to forget or are simply not aware of, especially when it comes to first time home buyers, is the fact that most financial institutions (including independent mortgage lenders) will allow their clients (aka yourself) to switch from their variable-rate mortgages into a fixed-rate mortgage. (And of course after your fixed-rate time period is over you could do the opposite). Whatever works out best to fit your financial needs is completely acceptable.

Talk to a Trusted Mortgage Lender

In other words, let’s theorize that when you talk to your trusted mortgage lender it seems that a variable-rate mortgage has the best rate for your current needs. (And this seems to be the case on the whole right now with Prime being so low at 2.25%, people are able to find some low variable-rate mortgages.) Now the only risk with variable-rate mortgages is that eventually over time Prime could do some crazy things such as sky-rocketing in percentage points which would push your interest rate up, up, up when it comes to your variable-rate. The answer to this is of course to exercise the option mentioned above, being that when you recognize that your variable rate is on the up-rise to chose to lock yourself into a fixed-rate mortgage. Therefore, allowing yourself a chance to ride the low Prime rate for as long as you can with your variable-rate mortgage but than still having the back up plan to switch to a fixed-rate mortgage and avoid riding interest rates all the way up to whatever high point they might be climbing towards.

Save Money with a Variable Rate Mortgage…for Now

With Prime looking to hold steady until at least the spring of 2010 it would seem that variable mortgages are a great way to go for now in regards to saving money and then if things change than you can always switch over to the locked in fixed-rate mortgage of your choosing.

However, you still have to recognize the fact that fixed-rate mortgages could be significantly more expensive once you actually decide to lock in. (Remember variable rates can go up but they can also go back down and once you are locked-in, you are locked in for that set amount of time…even if the variable rates are dropping to all-time lows.)

When studying mortgage rates from 1950-2007 (their was an academic study completed that came up with this data) it was discovered that variable-rate mortgages were actually the money-saving choice over five-year fixed rate mortgages almost 90 per cent of the time. If you are willing to ride interest rates on the up and down movement they usually go through (being aware that they could be at a higher point for an extended period of time) than the variable rates, according to the research done when looking at rates over time, that appear to commonly be seen as “risky business” to many actually seem to pay off more in the long run than the fixed rates do.

An Abundance of Choices

Now this is not the only option to save. One mortgage specialist suggests that in order to save on interest that it is actually ideal to start in a one-year fixed mortgage rate and than to switch to a variable rate after this one year is complete. With the thought process being that the closed one-year mortgage rates right now are sitting at around 2.55%, so you are actually not paying much more in comparison to what variable-rate mortgages are found at right now. And when you go to switch to a variable-mortgage in one years time the rate ideally will find itself at a discounted below prime standing.

The same mortgage professional also suggested that people should start considering 3-year closed rate mortgages due to the fact that they offer a nice mixture of both security against interest rate jumps and a current low interest rating. Closed-rate 3-year mortgages can currently be found for around 3.4% at a fully discounted basis. However, there have even been reports of a couple small lenders offering 3% through the mortgage broker channel.

The Trickle Down Effect

When it comes to 5-year fixed rates (which are still a popular choice) the main argument here is that currently rates are quite cheap still compared to overall historical standards. (However, if people were willing to ride the wave a little more they would discover they would save more on average with the variable rates) They are not at their all time lows; however, due to some changes in the bond market there has been a trickle down effect to the fixed-rate market resulting in an average rate finding across most financial institutions when compared to even a few months ago.

Author: Brian B King
Article Source: EzineArticles.com
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