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Fixed Rate Mortgages: What are the Benefits
by rebuildcreditscores
by rebuildcreditscores
In recent years mortgage loans drifted away from fixed rate loans and we are seeing the fall-out
from other loans like interest only and ARMs'
The Benefits:
Fixed Mortgage Payment
There will be no surprises even if interest rates increase, inflation occurs or there is a recession.
Your interest rate will remain the same. There is greater stability and less risk involved. The fixed
rate mortgage allows the borrower to know upfront what all future payments will be.
Easy to Budget
The stability in a fixed rate mortgage allows the borrower to manage their money with more
consistency. It will be easier to budget and make financial decisions.
Various Terms
There are several types of fixed rate mortgages:
Pay-Off your Mortgage Sooner
With a fixed rate mortgage, the borrower can choose to make larger monthly payments and have
that extra money designated directly to the principal balance. By paying just one extra payment a
year and having that payment go directly to the principal only, the borrower can reduce their 30-
year fixed rate term by 6 to 8 years.
The Disadvantages:
Refinancing
When and if mortgage rates decrease, borrowers would have to refinance their fixed rate loans in
order to take advantage of falling rates. Whenever you refinance you will have various fees
involved.
High Monthly Payment
Because lenders do not know what the interest rates will be in the future, they may charge you
more in the form of higher interest rates, fees and costs of loan origination for having the stability
and luxury of a fixed rate mortgage.
Taxes and Insurance
If your loan is higher than 80% of the home purchase price you will more than likely be required
to pay monthly property taxes and homeowner’s insurance. Your lender will tack on the costs for
the taxes and insurance to your monthly payment and place the extra money into an impound or
escrow account. When your taxes and insurance are due the lender will be responsible for
paying them.
Pre-Payment Penalty
This clause allows a lender to collect extra money if the borrower pays off the loan early.
Typically the pre-payment penalty can range from 1 to 5 years and is calculated as a percentage
of the outstanding balance at the time of pre-payment or a specified number of months of
unearned on the loan.
from other loans like interest only and ARMs'
The Benefits:
Fixed Mortgage Payment
There will be no surprises even if interest rates increase, inflation occurs or there is a recession.
Your interest rate will remain the same. There is greater stability and less risk involved. The fixed
rate mortgage allows the borrower to know upfront what all future payments will be.
Easy to Budget
The stability in a fixed rate mortgage allows the borrower to manage their money with more
consistency. It will be easier to budget and make financial decisions.
Various Terms
There are several types of fixed rate mortgages:
- 40-year fixed rate mortgage
- 30-year fixed rate mortgage (the most common)
- 20-year fixed rate mortgage
- 15 year fixed rate mortgage
- 10-year fixed rate mortgage
Pay-Off your Mortgage Sooner
With a fixed rate mortgage, the borrower can choose to make larger monthly payments and have
that extra money designated directly to the principal balance. By paying just one extra payment a
year and having that payment go directly to the principal only, the borrower can reduce their 30-
year fixed rate term by 6 to 8 years.
The Disadvantages:
Refinancing
When and if mortgage rates decrease, borrowers would have to refinance their fixed rate loans in
order to take advantage of falling rates. Whenever you refinance you will have various fees
involved.
High Monthly Payment
Because lenders do not know what the interest rates will be in the future, they may charge you
more in the form of higher interest rates, fees and costs of loan origination for having the stability
and luxury of a fixed rate mortgage.
Taxes and Insurance
If your loan is higher than 80% of the home purchase price you will more than likely be required
to pay monthly property taxes and homeowner’s insurance. Your lender will tack on the costs for
the taxes and insurance to your monthly payment and place the extra money into an impound or
escrow account. When your taxes and insurance are due the lender will be responsible for
paying them.
Pre-Payment Penalty
This clause allows a lender to collect extra money if the borrower pays off the loan early.
Typically the pre-payment penalty can range from 1 to 5 years and is calculated as a percentage
of the outstanding balance at the time of pre-payment or a specified number of months of
unearned on the loan.
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The fixed rate mortgage is probably the best
and most desirable loan for the new
homebuyer as well as a seasoned home
owner.
Most loans are designed as fixed rate
mortgage (FRM) loans in which the interest
rate remains the same throughout the term
of the loan.
Fixed rate mortgages are generally
amortized over a specified number of years
in equal monthly payments which include the
principal and interest. FRM terms can be
Terms can be 15, 30 and even 40 years.
and most desirable loan for the new
homebuyer as well as a seasoned home
owner.
Most loans are designed as fixed rate
mortgage (FRM) loans in which the interest
rate remains the same throughout the term
of the loan.
Fixed rate mortgages are generally
amortized over a specified number of years
in equal monthly payments which include the
principal and interest. FRM terms can be
Terms can be 15, 30 and even 40 years.
