Owning a home gives you a sense of pride. You’ve worked hard, you’ve saved up, and now you own a home that you can make your own. You can paint the walls, renovate the bathroom or build that backyard patio you’ve always dreamed of.
Finding the right mortgage to pay for your home can be intimidating. Fixed-rate mortgages, which have the same interest rate throughout the life of the loan, are common; however, you may also want to consider a variable rate mortgage. Here’s a closer look at variable rate mortgages, how they work, and how your local SC community bank can help you decide on what’s right for you.
What Is a Variable Rate Mortgage?
A variable rate mortgage is a mortgage with a rate that changes. Fortunately, these mortgages don’t fluctuate at random. The interest rate is tied to a benchmark, which varies depending on the lender, and it rises or falls based on that benchmark.
Variable rate mortgages also aren’t variable for the entire life of the loan. Most offer a period where the interest rate is fixed, which is typically for the first five to 10 years you pay on the mortgage. After that, the interest rate will adjust based on the schedule established by your lender. Typically, interest rates change once per year.
What Are the Advantages and Disadvantages of a Variable Rate Mortgage?
The primary advantage of a variable rate mortgage is that the initial interest rate is often lower than the interest offered by fixed-rate mortgages. Since the initial interest rate is lower, you may be able to qualify for a larger mortgage than you would with a fixed-rate loan.
A variable rate mortgage may be a good fit if you are planning to move or refinance before your initial fixed payment period is finished. For example, if you’re planning to move in three years, a variable rate mortgage with a fixed period of five years or longer could be a good fit.
The main disadvantage to a variable rate mortgage is that you may pay more interest over the life of the loan if you keep the variable rate mortgage for a long time. Even though the initial rate is lower than it would be if you got a fixed-rate mortgage, when the variable period starts, the interest will likely be higher than a fixed-rate mortgage. This could lead to you paying more in interest if you had just gotten a fixed-rate mortgage.
How Do You Know Whether a Variable Rate Mortgage Is Right for You?
Deciding on the right mortgage is a big decision. An online mortgage calculator can help you explore your options. Another route is to seek expert advice from an institution you trust. Arthur State Bank offers a robust mortgage portfolio, and you can meet with a loan officer in person to decide which option is best for you and your family.
Ready to learn more? Complete this no obligation mortgage information request form to have one of our loan experts contact you.