What is the difference between Variable and Adjustable mortgage? My column 2morrow.

[MortgageQueen]

Here is my newspaper column coming out tomorrow. Hopefully, you'll find it informative. . . Cheers!


What is theDifference between an Adjustable Rate and a Variable?
This is confusing on the surface for many and for good reason. They are both very similar words and if you aren’t really familiar with mortgage terms, it can be tough to differentiate between the two. Both rates are directly affected by the current prime rate, but affect your mortgage payment quite differently.
An Adjustable rate is much what the word alludes to. As the Prime rate changes, so does your mortgage rate and your payment. This is the key difference from a variable rate. An Adjustable mortgage means the payment does actually adjust or “change” along with the prime rate.
As an example, you have a $100,000 mortgage at prime (3%)Your current payment is $474.21. If the prime rate jumps to 3.25%, you new payment amount will be $487.32. This adjustable rate mortgage basically guarantees you are always paying the same amount of principal down on every mortgage payment. You can see how this contrasts with a variable payment below.
A Variable rate also changes with Prime rate BUT your payment stays the same. What changes are the amounts applied to your principal and interest. As the rate increases, less money goes to your principal and more of your payment goes to interest. So the difference from the Adjustable rate above is that you still have your $474.21 payment, but $13.11 (the difference between the $474.21 andthe $487.32 payments) has now been re-directed to your interest rather than to your principal.
So, how to choose the right option for You?. . . If you don’t feel the changes or increases in your payment would be a problem budgeting for, then an Adjustable rate mortgage could be the best hassle freem ortgage for you. You know exactly how much principal is being paid every month and how much you will owe at the end of your mortgage term.
If on the other hand, you are on a tight budget, a Variable rate would be better for you. Although you may not pay down your mortgage as fast, you know exactly what your monthly payment will always be. The one saving grace of this type of mortgage is that you can acquire a variable rate mortgagethat gives you the option of increasing your payments or making lump sum payments once or twice a year. This gives you at least the opportunity to“catch up” on any extra interest charges.
A Mortgage Broker can give you objective advice as to which type of mortgage would be right for you. With a large number of Lenders to choose from, you can be sure to find the very best fit for You.

[ssbean]

Enjoyed your column. Very informative! Thanks for the great info.

[kanewtz]

Was never even given the option of an Adjustable Mortgage when we got ours two years ago.
Went variable.

[MortgageQueen]

Was never even given the option of an Adjustable Mortgage when we got ours two years ago.
Went variable.

That's why you should use a Broker.

[guessboi]

Good to know the difference!

[thriftygranny]

Thanks for the information.really good info to know! You explained it perfectly.