The Advantages of a Fixed-Rate Mortgage
Have you heard of fixed-rate mortgages? It is a loan where interest rates do not change for throughout the loan period. This means that you also have a fixed monthly mortgage payment.
The only difference among different types of fixed-rate mortgages, according to KrisBakerLoans.com, is the repayment period and the corresponding interest rate. KrisBakerLoans.com explains that the main disadvantage of the fixed interest rate is higher than that of adjustable interest rates.
Fixed Rates, Fixed Monthly Payment
With fixed monthly payments, it is easier to budget for the monthly amortizations. The payment will be the same for the life of the loan. Inflation or even the fluctuations in interest rates would not affect the amount paid monthly.
Another benefit of fixed monthly payment is that over 15 years or 30 years, inflation would in effect make the monthly payment more affordable. As long as the homeowner is earning money and getting regular raises, they should be fine.
In most instances, the homeowner may pay an amount larger than the monthly payment. This allows them to pay off the loan in a much shorter time. If there is a possibility that interest rates will increase over the succeeding years, this is the type of mortgage that a potential homeowner should take out.
Equity and Interest Payments
Mortgage companies want to get paid as soon as possible. They also want to get a good return on the money they lend out. This is one reason 5- and 15-year fixed-rate mortgages have lower interest rates than 30-year mortgages.
Lending institutions are in effect, dissuading borrowers from choosing longer repayment periods. In terms of interest and equity, during the start of the loan repayment, the bulk of the payment goes to the interest. Only after a few years do the payments make any dent on the equity part of the loan.
Homeowners should consider a fixed-rate mortgage only because of the fixed monthly amortization. It may be higher than an adjustable interest loan, but it is a safer bet.