Must-Know Facts About Fixed Mortgage Rates
Purchasing a home is a major financial decision, and it is important for buyers to consider all of their available options. Fixed mortgage rates offer buyers a stable, low-risk way to finance their new home, but don't provide any flexibility or savings when interest rates begin decreasing. A potential home buyer should consult with a financial adviser to make the most informed decision about the best mortgage rates for his situation.
What Are Fixed Mortgage Rates?
A fixed-rate mortgage is a home loan that uses a constant rate of interest throughout the life of the loan. Adjustable-rate mortgages typically feature an attractive introductory rate, but the rates may vary during the loan period with monthly payment amounts fluctuating accordingly.
The Benefits of a Fixed-Rate Mortgage
Most home buyers prefer the stability of fixed mortgage rates. Fixed-rate loans are typically available in 15- or 30-year terms and are easy to understand, especially in comparison to mortgages with variable interest rates. The biggest advantage of a fixed-rate loan is that the payment amount never changes so budgeting is easier and financial surprises are minimized.
Is Fixed Rate Always the Best Option?
A fixed-rate mortgage is ideal when interest rates are at their lowest, but a fixed-rate borrower can't take advantage of falling interest rates unless he wants to spend additional time and money refinancing. The risks associated with adjustable-rate mortgages are not worth the potential savings to the average home buyer, however, especially not to first-time buyers. Adjustable-rate loans are generally best for individuals who have the ability to pay off their home loan quickly or plan to sell their new home before the introductory period ends.
There are two primary types of loans available to home buyers: loans with fixed mortgage rates and adjustable- or variable-rate mortgages. Fixed rates are the most common and carry the least amount of risk for the buyer. This type of mortgage is also easier to understand, but it may not always be the most cost-effective option.