Buying a home is perhaps the biggest financial commitment you will ever make in your life. If you are like most people, you will need a mortgage to buy your home. It will provide you financial aid, and help you in getting your dream home. However, not all mortgages are created equal – there are several different types of mortgages, mainly adjustable and fixed rate.
This short guide will explain the pros and cons of fixed rate mortgage loans.
What are fixed rate mortgage loans?
Interest rates may rise or fall, but if you take a fixed mortgage loan, your interest rate will remain the same for the entire length of the loan. So basically, there will be no surprises – pleasant or unpleasant. Let’s look at their pros and cons.
- You know the exact amount of your monthly payments.
- Mortgage rates New York may increase, but your payments will not go up.
- When you know what you have to pay each month, you’ll be able to create a better budget.
- 30 year fixed mortgage rates are slightly higher than the rates on adjustable mortgages during the first year or so.
- Interest rates may fall, but your monthly payments will not go down.
- If you pay off the loan early, you may face a prepayment penalty.
The 30-year fixed-rate mortgage is the most popular mortgage loan. Interest rates on this loan remain more or less the same throughout the country.
Who should take out a 30-year fixed mortgage?
The fixed rate mortgage is ideal for people who hate surprises. If you want your monthly mortgage payments to remain the same throughout the length of the loan, you should definitely consider a fixed mortgage. These loans are highly recommended for people who want to keep their home for a long time.
The longer the term, the costlier the loan
If you lengthen the term of your loan, your monthly payments will be low, but you will end up paying more interest over the course of the loan. If you shorten the term, your monthly payments will be high, but you will pay less interest in total.
Due to its no-surprise feature, fixed rate mortgage is the number one choice for several homebuyers. But that shouldn’t stop you from checking out adjustable rate mortgage options.