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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

Content is the opinion of the author and does not represent the position of any other person or entity. Information is from sources believed to be reliable but cannot be guaranteed.

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Fixed vs variable mortgage

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: The rate for a fixed mortgage is almost the same as the rate for an adjustable rate loan. Why would anyone choose an adjustable rate when you could simply refinance if rates go down?

A: There are a few reasons. First, the macro economic trend known as a “flat yield curve” dominates mortgage pricing today. This is an economic abnormality but may be with us for awhile. Secondly, it is not always so easy to refinance when rates drop. The process is time consuming and expensive. Most mortgage companies charge thousands of dollars for a refinance although Thornburg Mortgage borrowers can refinance for a flat $1000 (that is one reason that it is smart to use a “portfolio lender” that does not charge “points” on a loan). Third, with housing prices so high many borrowers are hitting limits with their “loan to income” ratio. Generally a mortgage payment should not exceed 28% of your gross monthly income. Many home borrowers will qualify for the loan they want using a slightly lower cost adjustable rate loan but would not be approved for the fixed rate loan.


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