There has been a lot of press lately about the different types of loans and you may have heard of a fixed rate loan. These loans are actually pretty simple to understand and preferable to many consumers. Before you accept one of the adjustable rate mortgages that are out there and really appealing at first, you should consider what a fixed rate mortgage will bring to your life and if it is something that will work for you.
The Fixed Rate Mortgage
A fixed rate mortgage is a mortgage loan that offers the same interest rate through the duration of the term of the loan. It seems like this would be the way that all loans are, but today there are many different types of loans, many of which feature interest rates that will adjust, float, or change over time.
A fixed rate mortgage should also not be confused with an interest only mortgage, a graduated payment mortgage, and adjustable rate mortgage, negative amortization mortgages, or balloon payment mortgages. Some of these other mortgages may have periods of fixed interest but then they all change and fluctuate.
When you take on a fixed rate mortgage you should be aware that your payments will stay about the same but there may be some things that will change the amount of your monthly payment from year to year. While your home will be being paid off and your interest will stay the same there may be changes in your escrow plan such as the cost of property taxes and insurance that will change, and therefore change the amount of money that you pay each month. These changes have nothing to do with your interest rate and should be easily explainable.
Fixed rate loans are generally the best for those that plan to stay in their home for a good while, if not the whole term of the loan. If you buy a home and you only plan to stay in it for two of the 30 year mortgage than you might want to consider an adjustable rate mortgage that may offer a lower interest may not change at all during this time. If you plan to stay in your home for at least five years than a fixed rate is a good idea because you do not want to have to worry about what your interest rate will be in four years.
Many consumers have found themselves in trouble five, ten, or even 15 years down the road when their adjustable rate mortgage has an interest rate that is so high that they simply can not make the payments. For this reason, if you believe that you will be staying long term you should go for the fixed rate.
Many people believe that fixed rate mortgages are not as good because their rates are not as good as the introductory rate of an adjustable rate mortgage, but this is not the case. When you compare the average interest rate of the other mortgages to the fixed interest rate, you will likely see that the fixed rate ends up saving the homeowner more in the long run. Each consumer is unique and needs to consider their options and what will work them but many find that the fixed rate mortgage is most advantageous.