Typical in this video adjustable interest mortgage mechanics clarify and then in which cases it will prevail and in what cases for the home buyer we will think that it will not be the best choice. Let's shoot here first now Let's think about mechanics with a time schedule. Vertical reading calculated as a percentage let's take it as your degree of interest. One, two, three, four, five, can be six percent and higher. Let's say the time axis is the horizontal axis. It reads when it shows years. One year, two years, three years, four, five and maybe more than six years. Before we talk about regulated interest mortgages, Let's talk about a fixed interest mortgage. If I had a fixed interest mortgage, that would be the exact meaning of the word. The interest rate will be stable.
You get a loan where you get a fixed interest mortgage by type of loan or, for example, Based on your 4% credit account This is the life of your loan which means it will be four percent. No matter how much you pay, depending on how long you stay in each period otherwise, you will pay a 4 percent debt every year. We are already 30, 15 and 10 years old in other videos related to fixed interest mortgages talked in detail.
Yes, you might think each time you overpay the percentage of payment is even higher decreases. So it does not change my interests. Yes, on a fixed interest mortgage as your payment increases, each month the amount you will pay decreases. However, you have to pay interest rate remains constant. In this example, too, the four percent payment will remain stable. What about a regulated interest mortgage? It is known that here the mortgage interest can be adjusted. Regulated interest mortgage at 2 percent can start and it really is may seem good, however if the short-term interest rate increases, regulated interest mortgages will also increase. So if the short-term interest rate If the interest rate on the regulated mortgage increases interest rate fixed interest mortgage interest can be more than the degree.
However, if the interest rate is excessive if it increases, then it exceeds the interest rate limit or may increase depending on another reason. What does this mean and short-term interest rate increase What does it mean? When you have an adjustable interest mortgage it also often regulates the index rate. The most typical in the United States are short-term treasures. This is when the government wants a one-year loan is the amount you have to pay, Although there are other indices under one-year treasures are provided, Not just a regulated interest mortgage, as well as any type of corporate another index that is typical for credit London Interbank Sales Percentage (LIBOR) may be.
We are already in other videos We talked about LIBOR. Let's say we have a key index dealing with one-year treasures. An annual with treasury markets treasure varies by day. Let's say it's a one-year treasure over time is the subject of what is happening in connection with. That is, the ratio is, this means that during this period if you lend to the government for a year, you will get more than two percent. The government's debt interest rate is two percent. So any other lender it is unlikely to pay the same interest rate as the government. The government can always cut money, therefore You have full confidence in the US loan.
That is, you have that right when you pay or fall into a financial crisis because you are not you may not pay for certain reasons. That is, you will not know the exact degree, degree and you will get a little extra. Suppose you have a very good loan and therefore the reward you receive is only one percent. In fact, this is an additional reward very well established companies can buy, This is just to make the calculation easier. Here we see when the loan is issued the annual treasury was about one percent and therefore you will receive two percent.
Sometimes every in a regulated interest mortgage Every 6 months, sometimes every year your interest will be reset. So when you look at the annual adjustments we can say that dealing with regulated mortgages and it is reset every year. That is, during the first year for the first year you will pay two percent. Then they will look at the index and that the index is 1.6 percent they will see.
So, you will pay an additional 1 percent and you will have to pay 2.6 percent. So you have to pay 2.6% for next year. At present, short-term interest rates have risen. Very close to about 3, so you pay 4 percent, However, your interest rates are stable as your mortgage interest rate rises regulated every year. You will see that at least until the third year you pay up to a mortgage with a fixed interest rate. You can say still a good deal. The first two years from a fixed interest mortgage we pay less. We pay the same only in the third year. Yes, that's right, so far everything is fine. However, in the 3rd year, interest rates are higher, therefore, the regulation is also high. So your adjustable interest rate may increase. That year you pay more and your interest rate for your home from a fixed interest mortgage becomes more.
I will say one way later that will be re-affordable and adjustable. Here, still, more than a fixed percentage you pay, but from this year you will pay less again. This is just one of many ways. In this you are regulated You know the mortgage and you think it will work for a few more years. More than a fixed interest mortgage you think you pay less. It's only been a few years here. But keep in mind that this is just is one of several possible probabilities. Maybe there is inflation, or something related to the index may change. These are not typical, but likely to be less, but during inflation throughout history such things have happened. In such cases, suddenly adjustable that your interest rate mortgage has increased slightly you can see. There are limits on interest rates that is, one or two percent of the mortgage each year prevents it from being more.
But if you like this or that if you see anything else, for life, especially your credit if it ends, 10,15,30 years payment within you may have to. Interest rates on the other hand it can be done at any time. In this case, an adjustable interest mortgage is for you could be better. You can see this line here. This can be estimated with a fixed interest mortgage. That is, the payment you make from one month to another even if only interest, Pay how much you pay, will not change. Regulated interest mortgages are less likely. This is more common in cable networks and seen elsewhere like this called interest rate risk brings out a very interesting idea.
Or, if the financial section of the newspaper if you read, you will see it. If this variable interest rate changes, is the risk you take. What is the risk in a regulated interest mortgage? Interest if the risk here occurs if it increases too much. At this time, your payment increases. In a fixed interest mortgage Who takes the interest rate risk? At this time the risk of interest rates takes the bank. Let's do both here let `s note. Who takes the risk in a regulated interest mortgage? Borrower.
They rank lower can benefit, but if interest increases, the borrower takes the risk. Who takes the risk in a fixed interest mortgage? Here is the risk the lender will take. So why does the lender take the risk? At a fixed interest rate, for example, they are and if it gives you four percent If it suddenly increases, remember that a lot lenders, especially financial institutions borrows. From whom do they borrow? They can borrow from many places. One of them is depositors. Remember what the bank does. This is a bank where people deposit, then lend it to him, in another video we will talk in more detail. When you take a deposit, to people and when interest is promised banks also give loans earn interest.
It is stable, however if the short-term interest rate increases, then they pay more than they get, Or it may not change, it's growing they won't make that much money. Thus, the borrower in a regulated interest mortgage, In a fixed interest mortgage, the lender takes the risk..