Advantages and Disadvantages of 30 Fixed Mortgage Rates
The average fixed mortgage rate for 30 year fixed rate mortgages fell three basis points to six percent in the last week and fees increased from one percent to one percent. The fifteen-year was also down five basis points at 5.57 percent and the origination fee, which includes appraisal fee and mortgage insurance cost, was up 0.1 percent. Homeowners who refinance to a fixed rate mortgage and are planning to use credit card funds to make large payments may want to consider a variable rate mortgage that is tied to a more stable financial index. However, before doing so, homeowners will need to evaluate their financial situation and see whether a variable rate mortgage will be advantageous.
Variable rate mortgages come with a variable interest rate and go up and down along with the prime rate. When a homeowner purchases a fixed 30 year fixed mortgage rate with a variable rate, the payment amount can vary as needed. This means that a borrower could end up paying much more money over the life of the loan than if they had chosen a fixed rate and kept it the same throughout the life of the loan. In addition, if rates increase much higher than the fixed mortgage rates, then a variable rate mortgage will cost more in monthly payment amounts.
On the other hand, a fixed mortgage rate can go up higher in the near future when it seems the economy might turn around and increase. With this possibility, a higher payment amount will be required by borrowers planning to increase their monthly spending and putting larger sums of money down on their houses. As such, borrowers who refinance to a low rate and stay within the present affordability can benefit from the benefits of having a longer time frame to pay their loans off.
If you are refinancing to take advantage of the fixed mortgage rates, then you need to have a good understanding of the factors that can affect your rates. First, if rates rise all of a sudden, you should ask your lending institution how their interest rates will work. Factors such as your credit score and employment history will have a huge impact on the monthly payments you will be charged. You can do a bit of shopping around before deciding to apply for the lowest interest rates available. Also, consider the various variables of fixed mortgage rates and the different types of refinance packages on offer.
Fixed rates are generally considered to be a better option than adjustable rates. Why is this so? Lenders feel safer when they know they can count on the security of the mortgage rates for many years into the future. With fixed mortgage rates, they can calculate the amount of monthly income you will require for a long term. As such, they base their rates on historically accurate information.
Another advantage of fixed mortgage rates is that they are flexible and can be adjusted as needed. Lenders can adjust their rates to make sure that they are not putting themselves at too much risk by raising rates. Adjustable rates can also be adjusted as needed but only for a short period of time. As such, they will temporarily reduce the mortgage rates in order to stabilize them in an unstable market. The advantage of fixed mortgage rates is that they are guaranteed to be at the same level for many years to come.
Another disadvantage of fixed rates is that there may be times when the interest rates may decrease lower than they are at present. This may happen due to fluctuating markets or political situations. In such cases, you may end up paying more for your mortgage in future years. While it is difficult to foresee problems in the future, you should therefore calculate how much you will be paying for your house in future years based on the present interest rates. You can do the calculation by subtracting the present mortgage rate from your future projections and the result will give you an approximation of what your house will cost you in the long run.
The problem with adjustable mortgage rates is that they can be adjusted in order to provide the lender with maximum flexibility. In other words, they can go up or down as per the current market trends. This may either provide you with great flexibility or a lot of financial stress. If you choose to go with fixed mortgage rates, you will always know what the rates will be in the future without having to make adjustments.