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Short Term Vs. Long Term Rates

Mortgage shopping can get very overwhelming. With all the different options for mortgages, it can be very confusing for amateur mortgage shoppers. Mortgage terms can vary between variable and fixed rate, from 6 month terms to 5-10 year terms. Taking a variable or floating rate mortgage can save you money, depending on the economy. Generally, the shorter the mortgage term or guarantee of the mortgage interest rate, the lower the interest rate will be. However, this isn’t always the case depending on the market place and the economy. Historically, it has shown that shorter term rates tend to be lower than longer term rates. The benefit of a variable rate is that there is the strong potential for interest rate savings. The negative is the fact that you are accepting the interest rate risk, which may go up more than the fixed rate without a guarantee. When considering a variable rate mortgage, you need to look at your cash flow available in case you have to deal with potential increased payment amounts. Understanding interest rates and how they go up or down is crucial in determining whether a variable rate is better or fixed rate is better. Be sure to talk to a mortgage or financial expert when you are making this decision.