Refinance Rate: Fixed and Variable

2007-03-08 10:33:40

( Financial )



Loan rates are the single biggest determinant of how much your monthly loan payments will be. Of course aside from the principal loan value which you have to repay, the loan rates are the interest charges that are based on the principal loan and on the type of loan taken.

FROZEN OR FLOWING RATES

Regardless of any type of loan, loan rates are of two general types – the fixed and the variable loan rates. Fixed loan rates simply means that the interest you will be paying remains constant over the entire lifespan of the loan. Fixed loan rates are stable in the sense that it is indifferent to loan fluctuations in the financial market. In this case, your loan rates are not affected however which way the interest rates move.

The second type is the variable loan rates. These types of loan rates move according to current market interest rates. The good thing about variable loan rates is that you can benefit greatly from it if interest rates take a plunge because your rates will decrease as well. The downside is that when the trend moves upward, your loan rates will go up accordingly.

REFINANCE RATE TYPES

A special type of loan rate is the refinance rate which refers to interest charges on refinancing loans. The premise of refinance is that current rates are better than the fixed rates of your outstanding loan. In this case, you as a lender would like to take advantage of the low rates through refinancing. Of course you would expect that your refinance rates are lower than your current loan or you would not refinance in the first place.

Refinance rates have fixed and variable types as well. Fixed refinance rates will freeze the current low rates until you have closed the loan. Variable refinance rates will still change depending on the trend, but it has a ceiling guarantee – that the rates will not go higher than the rate you are paying now.


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