By William Lee
Home loan shopping involves a dizzying group of options. It is preferable to choose a fixed-rate mortgage option that offers an unchanging interest rate for the entire loan term. This means, the homeowner will have to make the same amount of monthly payments until the loan gets paid off. Here, the debate is that the closing cost can turn out to be higher.
Another aspect is that getting a 30-year loan term for fixed-rate mortgage approved is extremely tough. Even with some disadvantages, some buyers prefer to choose a fixed-rate mortgage.
Understand the fixed rate mortgage
To get to know fixed rate mortgages, you will need to be familiar with the duration, interest rate, cost tradeoff, and payment fluctuations.
Confirm the duration
Many people believe that the fixed mortgage rate means the same payment for the loan duration. Last few years, brokers are using a trick on ignorant home buyers. They say the fixed rate mortgage is for the duration of 30-years when in reality the rate is fixed for only some years.
Therefore, while shopping you find a deal offered is cool check the duration of a fixed rate. If the mortgage duration is for 30-years with a fixed rate on only 5 years then you don’t have an idea of what will be needed to be paid, when these five years expire.
Determine the interest rate
Fixed mortgage interest rate determination includes factors like –
- Current prevalent interest rates
- Personal financial status
- Who will pay the closing costs?
- Private mortgage insurance
Cost tradeoff
The fixed mortgage rate is an expensive form of home loan in terms of upfront payments. In an adjustable-rate mortgage type, the lenders make money, when the rates increase, which is not possible in a fixed-rate mortgage. The lenders make a stake of 30-years. It means if after you took a loan, the interest rates increase then the lender will lose potential profits but borrowers will save a lot. This is the reason behind the huge upfront cost in choosing a fixed mortgage rate.
Payment fluctuations
Some homeowners get shocked when they receive a huge bill even after they are committed to paying their same monthly installments against the fixed-rate mortgage loans. It is because homeowners chose to pay their home insurance and property taxes directly from an escrow account.
If there is an increase in insurance or taxes then your lender will add the amount to your monthly payments, but this will not change your real mortgage payment.
Advantages of fixed mortgage rates
- Payment predictability.
- Extra payments towards the principal amount can be made without any prepayment penalties.
- Stable interest rates, even if the mortgage market worsens significantly. If the market is better than refinance and get good rates.
Disadvantages
Why is the fixed mortgage rate not suitable for you?
- Upfront costs are higher.
- Interest rates are higher.
- Hard to qualify for.
Who can find a fixed rate mortgage suitable?
Homeowners planning to stay for several years or plan to refinance and continue to stay there can opt for a fixed-rate mortgage. In situations where the prevailing rate is high then don’t get locked, especially when you are not planning to stay for long. If you possess a poor credit score then you will hardly qualify for favorable rates.
Contact Sammamish Mortgage online to understand the interest rates and home buying process clearly!
