Fixed mortgages
A generation ago, mortgage rules were simple - interest rates were fixed in advance and repayable in equal monthly installments over a term of fifteen to thirty years. The mortgage lender, usually a bank or savings and loan on a downtown corner, required that the purchaser make a down payment of twenty percent or more and have steady income and a good credit rating. The fixed mortgages are the one that most closely resembles this old system.
Today there are many more mortgage options, including relatively new types of fixed mortgages.
Advantages of a fixed mortgage
fixed mortgages are about the only type of mortgage available before thirty years. If you had a mortgage then, you most likely had fixed mortgages. That is probably the kind of mortgage your parents have if they have lived in their home for some time. What that means is that your parents are likely to say fixed rate all the way.In few cases, your parents are right. fixed mortgages give you the benefit of knowing your exact payment for the life of the loan. To some buyers, the financial security of having a set payment greatly outweighs any cost savings they might gain from getting another type of mortgage.
Fixed mortgages are especially sensible when interest rates are as low as they have been in the past few years.
If you plan to stay in your home for a long time, fixed mortgages becomes even more desirable. You gain most of the benefits of an adjustable mortgage during the first few years of the loan. After that, you may end up paying a higher rate. If you know you will be moving on a different city, job, or house in a few years, the adjustable mortgage makes sense, but if you are moving to your dream house to stay, fixed mortgages is the mortgage for you.
Finally, you will want to keep in mind that if your income is likely to rise, the burden of making payments will not be as great. When you are making twice the money, your house payments will still be at the original payment amount. That is plus. And if your income is likely to decrease or remain steady, fixed mortgages might also be the best bet. Your payments will be the same, so you can plan accordingly.
Disadvantages of fixed mortgages When interest rates are high, the picture changes. In this case, the rates for fixed mortgages may also be so high that you cannot qualify for a fixed rate loan. Also, why lock into a high rate for the life of the loan. Instead, consider adjustable mortgages, which are usually offered at a lower teaser rate with a cap that will ensure your rate stays low for the first few years. After that, if you find that the economy has shifted and interested rates are low again, you have the option of refinancing at a lower, fixed rate.
Interest and points for fixed mortgages
When shopping around for fixed mortgages, you will want to look at the interest rates that are offered and the points you have to pay. Keep in mind that the lender may offer a lower interest rate but have higher closing costs and points. You will want to carefully compare the different loans offered.
If you are going to live in the house for less than five years, you will not recoup the expense of the up-front points. You end up paying more, even though you have a lower interest rate and lower monthly payments.Ideally, you want the lowest rate with the lowest points. When you have to decide, higher rate, fewer points or lower rate, more points, first decide whether you can afford the extra expense of points. If you can be sure you will live in the house long enough to gain the cost savings from the lower interest rate.
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