By Akul Ranjan. Edited by Arjun Chandrasekar.


You may have heard the term mortgage frequently said around you, as it is a very common loan for buying a house or any kind of property. Mortgages are given out by mortgage lenders and banks alike. The loan is usually a fixed/varied payment for an extended period of time, like 30 years for example. Of course, there are interests involved in the loans. The home or property acts as collateral on the loan given out by the institution. 

Fixed-Rate Mortgage

In a simpler fixed-rate mortgage, lenders establish a fixed payment to be paid monthly for a duration of usually 15,20,30 years. The interest rate also remains stagnant, causing a smaller monthly payment the longer the duration of the loan is. However, the borrower ends up paying more in interest as the loan is longer. 

Varied-Rate Mortgage

Varied or Adjustable mortgages come with interest rates that change over the course of the loan. These changes are influenced by overall market and economic conditions, which then affect the monthly payments due. An example of a market influence is the current pandemic, which caused high 7% interest rates, affecting varied rate mortgages. These loans are adjusted over an interval period of usually every 6 months or every year. A commonly used varied rate mortgage is the 5/1 split, which contains 5 years of fixed payments followed by annual readjustment for the remainder of the loan. 

Outside Payments In Mortgages

Outside expenses involved with borrowing a mortgage are taxes and insurance. Homeowners have to pay property and homeowner taxes based on the value of the home/property and the state’s tax levels. Homeowners insurance also has to be paid by the borrower, which insures the lender’s collateral, the home, in case the borrower damages the property or defaults before paying the loan back.

Which Mortgage Is Best For You

Mortgages are a huge financial burden, requiring careful analysis of what is best for you. The key thing to remember is that fixed-rate mortgages give you a precise budget you will need to pay monthly, while varied rates can be risky and cause home foreclosures if not planned out. People tend to favor varied rates if they aim and believe their income will increase, allowing them to secure low interest now and be ready for the increase later on. 

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