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by:
Chileshe Mwape
A
fixed-rate mortgage is a mortgage on
which the interest rate is set for the
term of the loan. Your interest rate
stays the same for the term of the
mortgage or for a specified period of
time. Most people use a fixed-rate
mortgage. In fact, about 75 percent of
all home mortgages have fixed rates.
The main advantage of a fixed-rate
mortgage is that you always know
exactly how much your mortgage payment
will be, and you can plan for it.
A
Fixed Rate mortgage will offer you the
security of knowing that your mortgage
interest rate will not change during
the term of your fixed rate. For
example, a lender can offer a 30-year
fixed loan to a homebuyer at a 6.5%
interest rate. The loan is locked in
to the 6.5% interest rate, even if the
market interest rate rises to 8.0%.
Conversely, if the market interest
rate decreases to 4.5%, you will
continue to pay the 6.5% interest
rate. A Fixed-Rate Mortgage applies
the same interest rate toward monthly
loan payments for the life of the
loan.
Features:
-
Straightforward and easier to
understand than Adjustable Rate
Mortgages (ARMs).
-
More secure for the buyer and very
popular with first-time home buyers.
-
Ideal for anyone who likes to budget
monthly expenses and plans to keep
their home for several years.
-
Since the risk to the lender is
higher, fixed-rate mortgages generally
have higher interest rates than
Adjustable Rate Mortgages (ARMs).
-
Tend to have higher initial monthly
payments compared to those of
adjustable rate mortgages.
-
Fixed-rate mortgages are less
flexibility than adjustable rate
mortgages.
With
adjustable rate mortgages the interest
rate is not fixed, but changes during
the life of the loan in line with
movements in an index rate. The
advantage of an Adjustable Rate
Mortgage is that you may be able to
afford a more expensive home because
your initial interest rate will be
lower. In a fixed-rate mortgage, your
interest rate stays the same for the
term of the mortgage.
About The Author
Copyright © 2005.
Chileshe Mwape writes for The Secured
Personal Loans Website at:
http://www.secured-personal-loan.org.uk/
and he’s also a regular contributor to
the Fixed-rate Mortgages blog at
http://www.fixed-rate-mortgages.blogspot.com/
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