Bank mortgages
Mortgage is somewhat more than loan. It is the amount of money received from the home lender by keeping your property as collateral. Mortgage loans are available with the mortgage company brokers as well as banks. Mortgages are of two types fixed rate mortgages and variable type mortgage. The mortgage can also be availed for different terms.
The mortgage loan taken for 30 years or 5 years costs the same. The interest rate is almost same for both the cases. On the contrary, a 5 year mortgage loan returns great discounts as the interest rate is less for the loan term.
The variable home rate mortgage has been made very popular in recent years under the impression that the interest cost can be saved by pegging the mortgage rate to the lenders primary lending rate. As the prime rate increases, the mortgage rate also rises. The prime rate that the major banks charge is 4.5 percent as per the present rates. The post five year in the large banks is 6.15%. On an average, you can save $1,700 on the basis of monthly installments upto $150,000 for twenty years on variable rate mortgage loan. These figures are calculated taking prime rates into consideration. A recent study done by CHMC states that the 5 year mortgage loans availed from 1993-1998 could cost anywhere from $50,000 - $5,000 in addition to the interest paid over the loan period.
Drawbacks The loophole of this study is that the real-world mortgage price is not reflected. A very few people throughout the country obtain mortgage without a considerable discount concession on the posted rates at big banks. Due to this, the CHMC has decided to match the discounted 5 year mortgage plans along with discounted mortgages of variable rate type. However, the 5 year mortgage loan is more popular term as far as fixed rate mortgages are concerned comprising of 59 % of the total.
The discounts implemented were on the basis of posted big bank rates also with the best deals provided by other mortgage lenders. Discount of 1.25 % for a point in case of variable rate mortgages was assigned. The result was that it was cheaper by 0.4 point respective of prime. The interest cost was costly for a 5 year mortgage availed from 1993 to mid 1996. The variable rate mortgages have been expensive since then. Here are some points discussed about the CHMC study.
Factors to be considered
It stated that the discounted five year mortgage plans was actually bad option for 3 year term starting from mid 1993. Initially, the rates were high but decline subsequently. You would have a good experience if you were stuck up in a 5 year mortgage where individuals who preferred variable rate mortgage were benefited instantly. Now the picture has changed and the 5 year mortgage rates are very close to fifty year down which indicates that there is a possibility for them to rise over their period than fall. So it becomes a confusing choice to make regarding which option to choose. A fixed rate mortgage looks promising for five years but may not offer a significant cost to lock the mortgage but may be able to save money off variable rate mortgage.
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