Why a Fixed Rate Mortgage Might Be Best For You

A fixed rate mortgage is a type of mortgage wherein the interest rate on your note stays the same throughout the term of the mortgage, as opposed to other loans where the rate might fluctuate or “flip” during the life of the loan. These mortgages are popular in many areas of the country, especially for borrowers who want to enjoy low interest rates throughout their mortgage term. The stability of the fixed rate mortgage is an attractive feature for consumers who want to be able to pay off their notes in a certain amount of time. Some fixed rate mortgages have variable interest rates attached. While this can be beneficial to some borrowers because it allows them to go with whatever interest rate they wish to have, it can also cause a lot of financial strain.

The stability of fixed rate mortgages is appealing to a lot of people because it means that when the mortgage term expires, the money you borrowed will still be available. For example, if you choose a fixed rate mortgage with a fixed interest rate and you leave the home after the term has expired, you can still claim your loan because your interest and principal on the loan is still the same. If you decide to sell the property within a short period of time after borrowing, you can have equity finance because the principal amount you borrowed is still the same. However, the advantage of fixed rate mortgages is also the reason why they are among the most expensive types of mortgage loans. These mortgages often come with high interest rates because of their stability. Also, there are times when the market fluctuates far beyond the borrowers’ control, resulting in suddenly skyrocketing interest rates.

Due to the stability of fixed rate mortgages, adjustable rate mortgages (ARM) are considered to be a risky option for borrowers. Adjustable rate mortgages refer to those with variable interest rates. Because these mortgages come with variable interest rates, your monthly payment amount may vary from month to month. This can result to greater financial strain, and over the long term, you may find yourself paying more for your loan than you could have with a fixed monthly payment.

To make matters worse, some adjustable rate mortgages come with extra fees, which can make it more expensive to own your home. With these mortgages, the lender shifts the payment amount around every month, and you end up paying more every month compared to if you had simply chosen a fixed monthly payment. If you already made a large down payment, it may be hard for you to refinance or consolidate an ARM. On top of that, if you did not choose a fixed monthly payment, you will likely have to deal with high interest rates as well.

A fixed rate mortgage can prove to be a good choice for borrowers who want stability with their mortgage. If you plan on living in your home for the majority of your life, you will save yourself money. With a variable-rate product, you will have to pay more interest over time because the variable rate fluctuates. The result can be more money in your pocket at the beginning of your loan term, but you end up paying more over time. With a fixed rate mortgage, you can start out with a lower payment and see your monthly mortgage payments stay level for the first several years. You won’t have to worry about seeing your payment drop because your interest rates go up.

If you cannot handle high interest rates, a fixed-rate mortgage might not be the best option for you. Adjustable rate mortgages are risky, especially those with a higher initial interest rate; however, there is a reduced risk when using a fixed-rate mortgage for your first mortgage. Borrowers who need to plan for short-term interest rate fluctuations should consider fixed mortgages.

There are other reasons why a fixed rate mortgage is better suited to borrowers. One advantage is that you do not have to worry about inflation. With an adjustable-rate mortgage, if the base interest rate goes up, your payment can go up as well. This means that a fixed-rate mortgage has security and is less prone to changing interest rates. If inflation is a major concern for you, then a fixed mortgage is the best choice.

However, with a fixed-rate mortgage, you can also have a balloon payment if you should happen to need the money before the loan matures. As long as you make your monthly payments on time, you can keep your monthly payments at their set amount. If you should sell your home before the full maturity date of the loan, you would have to come up with the entire lump sum amount of the mortgage. This could be a problem for some people, so if you can stomach the balloon payment, you might want to think about a 30-year fixed rate mortgage.