Does the idea of a mortgage with a fixed interest rate sound appealing? After watching interest rates go up and down unexpectedly, lots of home buyers think searching and locking into the best fixed rate mortgage is the way to go.
But just as important is a thorough understanding of fixed-rate mortgages and what it could mean for you and your home investment in the long run. Here are some common fixed-rate questions you may be asking yourself.
What Does a Fixed Rate Mean?
A fixed-rate loan is one with a set interest rate over an established term of repayment. Typically, the gold standard for fixed-rate loans is the 30-year fixed rate loan. You can also find fixed-rate loans with 10-, 15-, and 20-year pay-off periods. When loan periods are shorter, you will have higher monthly payments, but slightly lower interest.
When Are Fixed Rate Loans Better?
Fixed-rate loans give you a stable payment, especially when interest rates are unpredictable. When interest rates rise, people with adjustable rate mortgages (ARMs) are faced with increasing monthly mortgage payments.
A fixed-rate loan means you will always know how much your home payment will be each month, regardless of what is happening with the economy or current interest rates.
What’s the Downside of Fixed Rate Loans?
With a fixed-rate loan, you’ll always pay the same amount of interest. That is great when interest rates are climbing, but if they drop below your interest rate, you will continue paying the higher amount of interest. Of course, you can always refinance a fixed-rate loan in order to get down to the best fixed rate mortgage.
Over the life of your fixed-rate loan, you will pay a substantial amount of interest. In fact, you will probably pay hundreds of thousands of dollars in interest. But there are ways to manage your mortgage so that it is an investment that works for you, and you can do this by talking to a mortgage specialist.
Are You Stuck with Your Repayment Schedule?
The best fixed rate mortgage works for you and your lifestyle. Sure, you can get a fixed-rate loan that pays off your home in 10 years, but believe it or not, that might not be the best investment. If your future financial plans change, you can always talk to a professional about changing your repayment schedule as well.