What Are The Advantages of a Fixed Rate Mortgage Over Adjustable Rate Mortgages?
As the name implies, a fixed rate mortgage is one on which the interest rate is fixed and set for the duration of the loan. In other words, the interest rate remains the same during the entire term of the mortgage or for a stipulated length of time. Fixed rate mortgages are the most popular ones of all home mortgages are fixed interest rate mortgages.
The biggest benefit of a fixed rate mortgage is that you will know precisely what your mortgage interest and principal payments are going to be and accordingly plan your budgeting in accordance.
The advantage of the fixed mortgage rate that you are secure in the knowledge that the interest rate is going to remain unchanged for the duration of the fixed rate mortgage. For example, the lender offers a 15 year fixed loan to the buyer of a home. He charges the purchaser 6% interest which is fixed and will not change for the entire term of the loan. Whether the market rate rises to 7% or decreases to 5%, the homebuyer will continue to pay the fixed 6% interest rate. Thus a Fixed-Rate Mortgage applies the same interest rate toward monthly loan payments for the term of the loan.
The perks and rewards of a fixed rate mortgage are:
1.It is simple and easy to understand in comparison to the Adjustable Rate Mortgages(ARMs).
2.It offers more security for buyers and is very commonly used by first time home buyers.
3.It is best suited for persons who want to know what their monthly budget for expenses is going to be and for those who wish to keep their houses for a longer period of time.
4.The fixed rate interest mortgages usually charge higher interest rates ARMs as the risk perceived by lenders is higher.
5.The Fixed rate mortgages usually have higher initial monthly payments compared to those of adjustable rate mortgages.
6.Fixed-rate mortgages have less flexibility than adjustable rate mortgages.
In the case of adjustable rate mortgages the interest rate is not fixed, but changes during the life of the loan. These changes are linked to an index rate and move in accordance to it. The Adjustable Rate Mortgage offers you the benefit of low initial rates and therefore you are able to afford more expensive homes. In a fixed-rate mortgage, your interest rate stays fixed for the entire life of the mortgage.