Fixed rate mortgages are loans which bear a certain interest that you and the lender agree shall remain the same for the entire life of the loan. It is just one of many types of mortgages available and is among the most popular. The counterpart to fixed rate mortgages is adjustable rate mortgages, also known as ARM. Fixed rate mortgages tend to have a slightly higher starting interest rate than adjustable ones.
Just as the economy and housing market fluctuate so will interest rates. When the government raises the interest rate, they lend to banks with the banks in turn passing on that cost to the consumer and vice-versa. Even though fixed mortgages may have a slightly higher amount than the introductory one of an adjustable mortgage, it can be very advantageous to lock in a low percentage. Imagine that the starting interest on a regular loan is 5.5% annually while an adjustable one is 4.75%. Over the first few years the adjustable may save you some money, but once rates go up, as they surely do, your adjustable mortgage can go to 9, 10, even 15% while the person with the fixed amount happily pays his or her 5.5%.
If you plan on keeping the home for the long haul and we are in a period of low interest, a fixed mortgage is much better to have than an adjustable mortgage. ARM can be used as a tool for a borrower who plans on selling the home within a few years, repairing and flipping the home, or simply paying back the mortgage very quickly.
All in all, fixed rate mortgages are highly recommended to the average home buyer because they are safe. It’s better to be safe than sorry when dealing with what most people consider to be the biggest and most important purchase in their lives. So lock in those ratios and enjoy the fact that you don’t have to worry about your bills going up every month, but most of all enjoy your new home!
Article by William Gold. William has done extensive research on fixed rate mortgage and mortgage interest rates. Visit http://www.approveall.com they are a great resource.
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