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Fixed rate, variable rate mortgage, in fine: among all the proposed formulas, how to find the mortgage that corresponds to your project? Explanations.

Real estate loan: which to choose?

Real estate loan: which to choose?

Total effective rate: first indicator of choice

Between changes in rates, ancillary costs, fees... it is difficult to find the real cost of a mortgage at first sight. To avoid any surprises, we recommend to consider only the Global Effective Rate (TEG). The Total Effective Rate is the rate that reflects the actual cost of a home loan. That is to say the one that takes into account the cost of ancillary costs, variations of a variable rate, etc. The mention of the TEG in a contract is mandatory.

This overall percentage rate is the main consideration for good choose your mortgage.

Presentation: different mortgages

There are three real estate loans: the fixed rate mortgage, the variable rate mortgage and in fine.

  • The fixed rate loan, as the name suggests, offers a fixed interest rate throughout the subscription and repayment period. It is the unsurprising loan: as soon as you subscribe, you know the repayment term, the interest rate and the monthly payments. Of course, these may vary depending on the choice of reimbursement but they are, in any case, known in advance. This loan offers better visibility.
  • The variable rate loan is based on a variable interest rate. That is, the rate increases or decreases with market rates. There are several loan formulas with variable interest rates: either the change in the rate affects the repayment period, or it affects the amount of monthly payments.
  • The loan in fine allows the borrower to pay, during the subscription period, only interest, namely the cost of the loan. The borrowed capital is paid at the end of the installments, at one time. This system considerably reduces the cost of monthly payments.

What other things to consider when choosing your mortgage?

Although the Total Effective Rate is the main indicator to consider, there are other elements that can help you choose your home loan. These elements correspond to everything that defines the comfort and the guarantees offered by the banks. This includes the cost of late payment penalties, insurance offers and the cost of such insurance.
Before subscribing to a home loan, it is important to check all these conditions, in addition to the TEG.

Video Instruction: Why Choose a Fixed Rate Mortgage in 2018 - Ken McElroy - Rich Dad Advisor