The Benefits of Choosing a Fixed-Rate Mortgage
Recent statistics show that more than sixty percent of all homeowners currently carry a mortgage. There are several different mortgage types a person can apply for. However, almost all home loans fall under one of two categories, fixed-rate or adjustable-rate.
Fixed-rate loans are the most common mortgage choice. This is thanks to the numerous benefits they provide homeowners. Continue reading to learn a few of the primary benefits of a fixed-rate loan.
What Is a Fixed Rate Mortgage?
A fixed-rate mortgage is one where your initial interest rate is the same one you’ll carry throughout the loan term. The alternative is an adjustable-rate mortgage (ARM), where the interest rate varies.
Most homeowners choose a fixed-rate mortgage, thanks to the numerous benefits they provide. You can find more info on these benefits below.
Consistent Mortgage Payments
When you choose a fixed-rate mortgage, you get consistent mortgage payments over the lifetime of your loan. In other words, the mortgage portion of your monthly payments will always remain precisely the same.
However, it’s important to note that other parts of your monthly payments could change. For example, the costs of your property taxes or homeowners insurance may fluctuate. This could cause a slight increase or decrease in your overall payments, but the interest rates and principal mortgage payments will remain consistent.
No Prepayment Penalties
Most adjustable-rate mortgages penalize homeowners who make early payments on their mortgage in the form of fees. This is because future interest rates could have been higher. Thus, the lender could have potentially received more funds if the loan was allowed to stay unpaid for its entire duration.
These penalties don’t apply to fixed-rate mortgages. Since the interest rates remain stable, a fixed-rate mortgage is only worth a specific amount of money which won’t change. So, there’s no reason a mortgage company would disallow a homeowner to pay it off early.
Makes Budgeting Simple
Having a preset mortgage payment amount can simplify budgeting, both in the short-term and long term. If you’re someone who likes creating their monthly budgets a year or more in advance, a fixed-rate mortgage is the best option for you.
Having a set, reliable budget also makes saving easier. You could potentially create your monthly budget in such a way that allows you to pay your fixed-rate home off earlier. For example, you may set aside $100 each month until the total amount equals the same as what’s owed on your mortgage.
A Fixed Rate Loan May Be Your Best Option
Thanks to numerous benefits, a fixed-rate loan may be the best option for you. Many homeowners choose these home loans thanks to the consistent mortgage payments and lack of prepayment penalties.
Do you still have questions about fixed-rate loans or mortgages in general? Then, feel free to browse our other posts. You’ll find numerous valuable articles on this and related topics to help you learn more about mortgages and the home buying process.