Fixed rate mortgages are usually more expensive than adjustable rate mortgages. Due to the inherent interest rate risk, long-term fixed rate loans will tend to be at a higher interest rate than short-term loans. The relationship between interest rates for short and long-term loans is represented by the yield curve, which generally slopes upward (longer terms are more expensive). The opposite circumstance is known as an inverted yield curve and occurs less often.
The fact that a fixed rate mortgage has a higher starting interest rate does not indicate that this is a worse form of borrowing compared to the adjustable rate mortgages. If interest rates rise, the ARM cost will be higher while the FRM will remain the same. In effect, the lender has agreed to take the interest rate risk on a fixed-rate loan. Some studies have shown that the majority of borrowers with adjustable rate mortgages save money in the long term, but that some borrowers pay more. The price of potentially saving money, in other words, is balanced by the risk of potentially higher costs. In each case, a choice would need to be made based upon the loan term, the current interest rate, and the likelihood that the rate will increase or decrease during the life of the loan.
Why use us for your Mortgage requirements?
Whether you are a first-time buyer looking for a new mortgage or aiming to switch home loans at the end of a deal with an existing lender, you want to find the best option to meet your needs.
That's not always as easy as it seems: The financial crisis has had a massive impact on the mortgage market: there are fewer loans available and lenders are more cautious about the amount they'll lend and who they'll offer mortgages to.
For example, a new homebuyer may want the security of a fixed rate mortgage and an existing borrower may just want a cheap remortgage deal - and those with bad credit will simply be looking for a specialized lender willing to give them a chance.
All borrowers, regardless of personal status, want to be able to compare the best mortgages on the market and find out what might suit them. This is where our mortgage comparison service can help. It covers the entire market - be it trackers, fee-free, flexible or self-certified loans - and, effectively acting as a mortgage calculator, can tell you within seconds what products might suit you best.
To find the right deal, all you do is answer some simple questions. Our search tool will narrow down the field on your behalf; tell you what loans are available, how long the deals last for and their true cost.
The service even tells you the monthly payments and how much interest you might pay, allowing you to decide if it is affordable or not. You can then apply, either online or by phone.