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Capped
Interest Rates
by Ellise Walsh
One of the most important
considerations for any home buyer considering using a variable rate home
mortgage loan is the interest rate cap on that loan. All variable rate and
adjustable rate home mortgage loans have a capped rate, a rate above which the
mortgage interest rate cannot rise.
It may not be likely for interest rates to rise far enough to kick in the
interest rate cap, but with a variable rate mortgage loan that is always a
possibility. It is vital that the mortgage shopper find out exactly how high
the interest rate can go before signing any loan paperwork.
Once you know what the interest rate cap is, use a mortgage calculator to
determine how much your monthly payment will be if the interest rate were to
rise to its highest possible level. If this monthly mortgage payment frightens
or shocks you, it may be wise to go with a fixed rate home mortgage loan
instead.
If however, you feel comfortable even if the monthly mortgage payment were to
rise substantially, and if you feel you have the availability of income to
handle these payments, a variable rate mortgage may be a good choice for you.
A variable rate mortgage can also be a good choice if you do not plan to stay
in your home more than a few years. Many people who move often for their job
find that using variable rate mortgages can save them a lot of money. These
short time homeowners are able to take advantage of the low initial rates
offered by the variable rate mortgage. They are then able to sell the home at
a profit when they move and use the equity they have built to purchase a home
in their next location.
Variable rate mortgages will generally have an interest rate which you can
lock in to convert the variable rate mortgage into a fixed rate mortgage. This
is a handy feature and it offers some protection against a rising interest
rate environment.
Whether you choose a variable rate mortgage or decide to go with a fixed rate
home mortgage loan instead, it is vital to do your homework up front and shop
around for the best rate. Getting the best possible deal on your home mortgage
loan can save you thousands of dollars over the life of the mortgage.
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