Flexible rate or variable rate mortgage is a type of loan for buying a property where the interest rate is not fixed. In essence, this means the interest can fluctuate over a period of time, normally 6 months, although this factor can vary considerably from lender to lender. The amount of interest applied to loans is directly influenced by market conditions and when the time comes, the central bank is the organization in charge of adjusting interest rates. Below are some of the common pros and cons associated with flexible rate mortgages.

Advantages

• The main advantage presented by flexible rate mortgages is that when the central bank cuts interest rates, the price of monthly repayments also decreases shortly after.
• Another benefit is the amount of interest charged on flexible mortgages. Fixed rate mortgage deals normally have higher interest rates since the lender will have to compensate for possible unexpected market fluctuations which could pinch profits. Such a risk is not present in flexible rate mortgages so clients have better possibilities of negotiating a loan with more favorable interest rates.
• Most flexible rate mortgages allow borrowers to pay part of the capital in advance without suffering penalties. These early advances will lower monthly repayments and the total cost of the loan.
• Flexible rate mortgages are generally cheaper than other mortgages meaning buyers can on average afford a bigger home as a result.
• Lastly, one of the most appreciated advantages is that flexible rate mortgages usually start with small payments in the beginning of the loan and increase in value as the years goes by. Younger customers are the ones to benefit the most from this incentive since they earn considerably less early on in their professional careers.

Disadvantages

• Pros and cons of fixed rate mortgages