Fixed Rate Mortgage Loans -
Understand the Pros and Cons of |
By Carrie Reeder |
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There are many benefits and drawbacks to consider when deciding if
a fixed rate mortgage is right for you. It is important to look
at all options when it comes to something as important as
getting a mortgage for your new home.
There are a few
benefits to fixed rate mortgages. One benefit is that the rates
and payments remain constant. There wont be any surprises even
if inflation surges out of control and mortgage rates head to
20%. This kind of stability makes budgeting easier. People can
manage their money with more certainty because their housing
expenses wont change. Fixed rate mortgages are simple to
understand making them appealing and good for first time buyers.
Also longer term fixed rate mortgages are very affordable.
There are also a few drawbacks to fixed rate mortgages. To take
advantage of falling rates, mortgage holders would have to
refinance. That can mean a few thousand dollars in closing
costs, another trip to the title company office and several
hours spent digging up tax forms, bank statements etc. Fixed
rate mortgages can be too expensive for some borrowers,
especially in high rate environments, because there is no early
on payment and rate break like there is with adjustable rate
mortgages. Fixed rate mortgages are practically identical from
lender to lender. While lenders keep many adjustable rate
mortgages on their books, most financial institutions sell their
fixed rate mortgages.
There are a few other important
questions you should make sure you have answers to when deciding
which type of mortgage is better for you. How long do you plan
on staying in the home How frequently does the adjustable
rate mortgage adjust, and when is the adjustment made
What‘s the interest rate environment like Could you still afford
your monthly payment if interest rates rise significantly
Do you know the main pros and cons for each type of loan
Generally, fixed-rate mortgages are a safer way for first time
home buyers to get a mortgage. There is greater stability and
less risk involved. It is easy to budget and regulate your
expenses when you know exactly what your interest rate will be.
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