A Fixed Rate Mortgage – The Advantages You Should Know About Today

There are basically two types of home mortgages that most people choose from – adjustable rate mortgages and fixed rate mortgages. Adjustable rate mortgages, or ARMs, are just what the name implies – the interest rate adjusts on a certain time period based on the current prime interest rate plus the lender’s points. A fixed rate mortgage is also just like it sounds – the interest rate is decided at the time of the mortgage. It is based on the current prime rate plus the lender’s points, and remains the same throughout the term of the mortgage. There are many reasons why a fixed rate mortgage is favorable over an adjustable rate mortgage. Let’s look at the top reasons why you should choose a fixed rate mortgage.

Lock in a good interest rate

If the current prime interest rate is low, you want to lock it in for a longer period of time. This will mean paying less interest on your home than if you have a higher interest rate. Of course, there is some risk involved in this – the interest rate could go lower and your loan would be at the higher interest rate. However, if the interest rates go up, the decision to select the interest rate and lock it in is a good one. It’s important to both seek the advice of the lender and have a look at the interest rate trends. If you feel it’s a satisfactory risk in your favor to lock in at the interest rate, then go ahead and do so. However, if you think that the interest rates are too high and may go lower, then it might be to your advantage to choose an adjustable rate mortgage at the lower interest rates.

Know what your payments will be for the rest of your mortgage term

When you lock in an interest rate with a fixed rate mortgage, the mortgage payments will stay the same for the entire term of the loan. With an adjustable rate mortgage, the payments change when the interest rate does. That means that your payments may be slightly higher should the rate go up or slightly lower should the rate go down. If you’re on a fixed income where you know exactly how much money you make each month, choosing a fixed rate mortgage is the way to go. This is the best mortgage to choose for those who take the maximum amount of mortgage to purchase a house. Having higher payments due to increased interest rates with an adjustable rate mortgage just isn’t feasible in this situation. In this case particularly, you will want to lock in a good interest rate with a steady monthly payment in a fixed rate mortgage.

Staying in your home for many years

If you plan to stay in the same house for quite a few years, then you’ll want to consider a fixed rate mortgage. Adjustable rate mortgages are aimed at people who are only planning to own the home for a few years (three to five) and are looking to pay the least amount of interest and the maximum amount of principal in that short period of time. A fixed rate mortgage is better for long-term homeowners who want to own the same home for many years.

Choices in Fixed Rate Mortgages

Within the realm of fixed rate mortgages, you have an abundance of choices. You’ll find that different lenders offer different terms – from 15 to 40 year term loans. Each of the separate fixed rate mortgages has their own advantages. For example, a 15 year fixed rate mortgage pays off your house in much less time than a 30 year mortgage does, and you’ll end up paying less in interest at the end of the loan period. However, the monthly payments on a 15-year mortgage are considerably higher than with a 30-year mortgage – usually 10 to 15 per cent more each month. If you can afford the higher payments, then the 15-year mortgage is the way to go. If you find that you can’t afford higher payments, locking in a 30-year mortgage will ease the financial strain of monthly payments and still allow you to own a home. Another option you’ll see often is a bi-weekly mortgage. These are almost always fixed rate mortgages, and allow you another way that to pay off your mortgage faster. By making bi-weekly payments, you’re actually making an extra monthly payment each year (26 bi-weekly payments is 13 months of payments). A bi-weekly fixed rate mortgage is a great choice for people who are paid bi-weekly already instead of twice a month. While it doesn’t sound like the extra payment would make a lot of difference, it can mean saving thousands of dollars in interest over the course of your fixed rate mortgage. Therefore, this allows you to pay off your mortgage with less interest and somewhat quicker.

The choice is yours

Overall, the choice of a fixed rate mortgage versus an adjustable rate mortgage is yours to make. You have to weigh the pros and cons based on your situation and employment income. Making the decision should be based on the following:

• The current interest rates.
• The lender’s additional points. Sometimes the lender will lower his additional points for an ARM.
• Your income. • How you are paid. • How long you want or plan to stay in your home.
• The amount of the fixed rate mortgage payments.
• Whether you will be able to afford higher payments if rates were to go up with an ARM.

With so many different fixed rate mortgage products available from lenders today, many people are still opting for this tried and true mortgage type. While adjustable rate mortgages did take the spotlight for a while, with interest rates as low as they’ve been in years, many people are making the wise choice of locking in a low interest rate with a fixed rate mortgage.