The Pros and Cons of Fixed Mortgage Rates
Fixed rate mortgages are loans that are quite shared among first time home buyers in addition as people who are chiefly concerned about possible increments in interest rates.
In this article, we shall examine the merits and demerits of fixed rate mortgage. We shall also discuss the best circumstances in which to get a fixed rate mortgage.
Many home owners like the safety and assurance they get with fixed interest rates knowing that, no matter what happens, their interest rates will keep unchanged.
So, what exactly are the merits and demerits of a this kind of mortgage? Before we delve into that, let’s discuss briefly about what fixed rate mortgage loan entails.
As the name implies, it involves a fixed or invariable interest rate on home loans. In effect, this method that unlike the variable rate mortgage loan where the monthly loan payment can go up or down depending on the prevailing market conditions, it involves a fixed or pre-set payment rate for the lifetime of the loan.
For example, a home owner who has a five-year contract will pay the same mortgage bill each month until the term is completed, no matter what happens in the market.
What Are The Benefits Of Fixed Rate Mortgage?
This kind of mortgage loan can be used by used by both first time buyers in addition as existing mortgage holders looking to refinance their mortgage. There are several benefits in using a fixed rate mortgage. Some of these include;
(i) Monthly mortgage payments will be the same for the tenure of the loan. This can help home owners plan their monthly budgets better and help meet tight budgets since they know exactly how much they will pay each month towards their mortgage
(ii) Increases in inner bank rates will not affect their mortgage bill on the character if they have fixed rate mortgage. On the contrary, it could potentially save them a lot of money
(iii) Borrowers will have the opportunity to negotiate and lock in a deal at an interest rate that is lower than the standard variable rate
Before choosing this mortgage option, however, it is advisable to consider the demerits.
What Are the Disadvantages of Fixed Rate Mortgage Loans
Although this kind of mortgage loan suits many home owners, it is not appropriate for all categories of home owners. Some of the major drawbacks include:
(i) Fixed rate mortgage loan offers may be more expensive than the variable interest loans
(ii) A decline in interest rates could make home owners end up with higher mortgage payments than people who opted for the variable rate monthly plans from the outset
(iii) There will be a fee to pay in most situations and penalties may be charged if a landlord wants to end a deal early or change it
Making a choice between a fixed rate and a variable rate option will depend on the preference of the owners and their specific financial situation.
The best time when this mortgage kind is most appropriate is when interest rates are low enough for a likely future increase. The least favourable time for it is when the interests rates likely to fall.
For first time buyers and others with limited experience, be sure to scout around for the best mortgage deals obtainable to you from different lenders before signing the contract.
Online mortgage calculators and mortgage comparison sites will come in handy while seeking the best possible fixed rate deals.