Fixed Rate Mortgage

The Pros and Cons of the Fixed Rate Mortgage

A fixed rate mortgage has a major advantage in that your payments are a specific amount every month. The major disadvantage is that you're locked in at the rate applied at the time of the fixed rate mortgage. Whether this is a good idea or not depends on your specific circumstances. You should carefully consider the fixed rate mortgage before you take out either a fixed rate mortgage or an Adjustable Rate Mortgage.

Many people simply have trouble with the idea of not knowing exactly how much their mortgage payments are going to be each month. If you have a variable rate mortgage (sometimes called an adjustable rate mortgage) instead of a fixed rate mortgage, the monthly payments are calculated based on the current interest rates. That means that your payment amount will fluctuate from month to month. By contrast, fixed rate mortgage payments will be the same from one month to the next throughout the course of your loan. Only a balloon payment, late charges or a final payment will possibly be a different amount from the monthly payment amounts set out in your loan agreement.

For those who have budgeting problems, this could be a great idea because you never have to wonder how much money you'll have to come up with for your mortgage payment on a specific month. If you choose automatic draft for the payments, you also never have to wonder how much the mortgage company withdrew from your account on a given month. This stability of a fixed rate mortgage is the point that attracts many people to this type of mortgage. But if you take out a loan when interest rates are high, having an adjustable rate mortgage can also be a benefit as interest rates fall. Of course, you're working on the assumption that the rates are going to fall, bringing your payments down as it happens. If the interest rates rise instead of fall, you'll be paying more per month.

If you're talking to a lender already, you should ask about a fixed rate mortgage as opposed to an adjustable rate mortgage. You may find that once you have all the details, you're best loan choice isn't what you'd expected it to be.