Is A Fixed-Rate Mortgage Right For You?
When you decide to buy a home, there are two primary types of mortgages you can choose from: an adjustable rate mortgage or a fixed-rate mortgage. Many people choose to go with a fixed-rate mortgage because the interest rate does not change throughout the life of the loan. Fixed-rate mortgages provide homeowners with additional advantages outside of a consistent interest rate. This blog post will help you determine if a fixed-rate mortgage is the right option for you.
What Type Of Borrower Would Benefit From A Fixed-Rate Mortgage?
As stated, interest rates remain constant, meaning there won’t be any surprises even if the market changes. Additional reasons you should consider a fixed-rate mortgage include:
- No Pre-Payment Penalties: With a fixed-rate mortgage you are able to make extra payments to shorten your term without obtaining prepayment penalties.
- Shorter Term, Less Interest: If you obtain a fixed-rate mortgage for a shorter term, you will incur less interest over the term of your home loan. Keep in mind if you choose a shorter term, your monthly payments will be higher; however, you will be paying less overall for your home. In addition, shorter terms typically offer lower interest rates, which would allow for a larger amount of principal to be paid off with each mortgage payment.
- Your Income Is Steady: If you have predictable income, budgeting will be easier. Knowing that your income will remain about the same, or increase over time will allow you to manage your money consistently with your monthly mortgage payment in mind.
- Easy To Understand: Fixed-rate mortgages are easy to understand since your rate remains constant. This is especially great for first-time home buyers who could be confused with changes to an adjustable rate mortgage.
- Interest Rates Are Low: If interest rates are low, a fixed-rate mortgage is a great option to lock in your low rate before rates increase again.
- You Plan To Stay In Your Home: If you plan to stay in your home for an extended period of time, a fixed-rate mortgage could be a good option for you.
For an interactive video comparison from Investopedia, click here.
So What’s The Final Verdict?
Fixed-Rate mortgages are great for many homeowners because your interest rate will remain consistent throughout the term of the loan. Before buying a home, make sure to evaluate your current financial situation to determine if it’s the right time for you to buy a home. Tools such as a mortgage calculator or a mortgage payment calculator can help you determine how much home you can afford, as well as what your monthly payments would be. Other tools such as Launch CU’s mortgage comparison calculator can help you compare up to three different mortgages to find out which one works best for you.