Feb

26

2015

Understanding Fixed Rate Mortgages

Views 1329

calculating mortgage interest rate

As someone who starts looking at the real estate market, one thing that constantly comes up is the term fixed rate mortgage. We know that mortgages are special loans granted to a borrower for the purpose of acquiring land or property, with said land or property standing the majority of security for the loan itself. Mortgages have been a mainstay of the real estate market for quite some time. They are accepted as the way that a person would normally buy a piece of land or a residential property who does not have access to the liquid funds that are required to pay off on the property in one fell swoop. Fixed rate mortgages are a type of mortgage that individuals can take out as a means of property acquisition that can be very handy, but comes with its own set of drawbacks.

What is a Fixed Rate Mortgage?

A fixed rate mortgage is a mortgage that has a rate that does not go up or down during the length of the payment period. Because of this, all the payments to be made on the property are known at the time of closure. The major benefit of the fixed rate mortgage is that the buyer has a solid idea of what he or she can expect over the payment period. Payment periods for fixed rate mortgages vary, with most of them coming in at thirty years. A fixed rate mortgage ensures that the purchaser will not have to deal with the fluctuations that the property market is notorious for. The downside of a fixed rate mortgage is that the closing price on a property for a mortgage such as this is higher than an adjustable rate mortgage.

Is a Fixed Rate Mortgage Worth it?

This is, of course, a very subjective question. Depending on the state of the housing market, a fixed rate mortgage provides security for the purchaser, ensuring that the amount he or she pays on their home is standardized and not liable to change over the duration of the loan period. However, adjustable rate mortgages usually have fees that fluctuate depending on the state of the market. Ideally, a fixed rate mortgage should be taken out if you are not willing to peg your mortgage payments on a market that can turn on you in an instant. Adjustable rate mortgages usually have a smaller lump sum down payment than fixed rate mortgages, but the interest rates can climb as time goes on due to volatility of the real estate market. All in all, a fixed rate mortgage is by and large the better bet for someone thinking about a long term payment plan for a property.

Although fixed rate mortgages are desirable because of their level of security, you should not discount adjustable rate mortgages just yet. If the real estate market swings in our favor, an adjustable rate mortgage can end up costing us less. However, if you are the sort of person who tries to minimize the risk of a loss, a fixed rate mortgage is a better solution to your plan. Your mortgage payments may be with you for a long time so this is something you need to consider carefully before signing on the dotted line. Remember: a home is an investment and like any investment you should think about how best it can work to give you value. A fixed rate mortgage is the best way currently for property to return value through security on payments.

Subscribe for more updates

Or
Following Error Occurred: