Fixed Rate Mortgage - Pros and Cons
Joe Ramirez
When it comes time to select a new mortgage, you will be choosing from
mortgages that fall into one of two categories - fixed rate
mortgages (FRM) and adjustable rate mortgages (ARM). The main difference
between these two types of mortgages is that the interest rate on an
ARM is tied to an index that will fluctuate with market conditions
while the interest rate on a FRM will be the same for the life of the
loan. Let's take a quick look at the pros and cons of a fixed rate
mortgage.
Pros
Your payments will remain stable over the life of your loan. While the
major financial indexes will continue to fluctuate from month to month,
your rate and payment will remain locked in. As long as you continue to
pay your loan on time, your mortgage payment will not change.
No surprises. As the interest rate on your FRM does not change, your
payment will be constant. You will be protected from the potential
rising mortgage payment that those with an ARM can face from month to
month.
Because you know what the payment on your mortgage will be for the life
of your loan, it is easier to budget the payments for a fixed rate
mortgage.
Cons
The payments on a FRM are typically higher than the payments on an ARM.
This is especially true in the first few years as many adjustable rate
mortgages have teaser rates that are substantially lower than the fully
indexed rates.
The higher payments that come with a fixed rate mortgage typically
require the borrower to show more income than the payments on an
adjustable rate mortgage.
Should interest rates decrease, you will need to refinance your FRM to
enjoy the benefits of those lower rates.
Fixed rate mortgages typically have a higher interest rate than
adjustable rate mortgages. In order to protect themselves from loosing
future interest revenue if rates increase, mortgage lenders lock in
future profits by attaching higher rates to fixed products.
If you plan on refinancing or selling your home in the next 5-7 years,
you will be paying for the long term security of a FRM when an ARM
could have provided you a lower rate, and lower payments, over the same
term.
You should always speak with a mortgage professional when trying to
determine the best mortgage for your situation. A mortgage professional
can help you determine the pros and cons of each type of mortgage and
help you weigh those against your unique needs. While on the surface, a
fixed rate mortgage might seem like the best option, frequently, an
adjustable rate mortgage will allow you to meet your needs and help you
achieve your financial goals faster than if you were devoting more of
your income to a fixed rate mortgage.
Not sure about which mortgage to choose? Contact the professionals at
http://www.myrefi.com for a fast,
free, no obligation consulation.
MyRefi.com is a member of the http://www.FindAMortgageMatch.net
network.
See Also:
Index of All
Info on Home: Loans, Insurance & Selling
Search our site for any Home, Lawn or Garden Info
