Although there are many sun categories, bond basically fall into two different sun categories: those that are based on fixed interest rates and whose interest rates fluctuate during the loan’s duration dependant on terms agreed by the lending bank and the borrower when the loan was issued. Fixed interest rates are more popular, simply because the borrower knows exactly where they stand at all times in relation to their loan.
Fixed rates are old-fashioned and popular among citizens including home owners, who want to have a bond with a consistent price. They would rather just pay up-front a fixed fee instead of deal with a fluctuating rate.
Most fixed rate bond run between twenty to thirty years, which is definitely a long time. A lot of people would rather stick to something around fifteen years, which is fine if they have a higher than average equity along with an income sufficient to meet the higher monthly payments.
The ideal world would make it possible for the bank to tailor the loan around the individual’s needs. Obviously this is not an ideal world, so banks must do what they must to protect their own needs. Banks offer bonds in five year additions, beginning with fifteen years and slowly moving up from there. Twenty five is the most common duration, although fifteen year bonds are finding a niche.
Individuals sometimes take a liking to bonds where the interest rate fluctuates because they can stay in close connecting with the interest payments. Some bonds begin with a fixed rate of interest over the first ten years or so. People like these bonds because they can calculate how much interest and how much interest they are paying.
The homeowner will have the advantage of requesting that the blame of their loan be adjusted to the market conditions at that time. If interest rates are lower than they were when the original bond was negotiated, then the borrower will ask for the interest rates to be adjusted accordingly. Their bank is obliged to comply with this demand, but will charge a one –off fee for the privilege. It will be the responsibility of the borrower to assess that the savings in interest made will cover the cost of the fee.
On the opposite end, the bank will constantly adjust the interest based on a decreasing economy. These increased interest rates are tough to handle but it comes with taking out a loan.
Both types of bonds offer different advantages. Generally people are inclined to stick with a fixed mortgage rate and sacrifice the chance the interest rates will drop throughout the years.