When you go shopping for a mortgage on your new Burbank, California home, you'll have to decide if you want a fixed or variable (also called adjustable) rate. Variable might seem like a great idea to people who saw the market rates fall while they had a fixed rate mortgage on their Mississauga townhouses, but they have their risks. We'll outline what they are so you can make an informed decision.

When you have a fixed rate mortgage, the interest rate your bank charges you is the same for the life of the loan. Whatever they were advertising the day you went in to ask about commercial mortgage lending is the rate that you get. With a variable rate mortgage, your interest rate changes as the prime interest rate in the market changes. The appeal for most people is that if the rate goes down, your interest rates go down. Many people get variable mortgage rates actually expecting this to happen, which makes it all the more devastating if the rates actually increase instead.

Because your mortgage rate is tied to the rate in the market, it's impossible to predict what your payments will be next quarter or next year. If interest rates go up, your payments go up, and suddenly you have to adjust your budget. Some people might even find that their mortgage payments have gone up so much that they can no longer afford their King west condos. This is a very scary situation to be in, because it means that you can either sell the home and hope what you get is enough to pay off the balance of the mortgage, or you can default on your payments, let the bank take the house, and end up with nothing.

This, of course, is a worst case scenario, but the thing to remember about worst case scenarios is that sometimes they actually do happen. When you're financing a home for sale in Georgetown, Ontario you can't afford to stick your head in the sand and tell yourself that bad things only happen to other people. Because of the possibility of this dire situation, some variable rate mortgages allow you to set a cap on the amount your interest rate can increase over a certain period or on how much your monthly payments can rise to.

Caps don't solve all of the problems though. Sometimes all they do is defer the interest rise until the next year or extend the term of your mortgage unreasonably or change the ratio of interest to principal being paid off by your payments to the point where you actually owe more each month rather than less. These are all things to think about when shopping for a construction mortgage.