Many of the terms you have heard and read about purchasing a house may be unfamiliar to you, and that is understandable. However, mortgages can be fixed or variable in interest rate. And any length of time up to and including a custom period is acceptable. However, mortgage interest rates have been on a slow and steady decline for the last few years. This has caused some to wonder: Will my fixed-rate mortgage ever fluctuate?
Read on to learn more on this.
WHAT EXACTLY IS A FIXED-RATE MORTGAGE?
A fixed-rate mortgage is a type of house loan in which the interest rate remains the same throughout the loan agreement. It is important to note that even though the interest rate on the mortgage will never vary, the monthly payments will always be the same for the borrower.
Mortgage rates will not be affected by even minor changes in the overall market.
ADVANTAGES AND DISADVANTAGES OF FIXED-RATE MORTGAGE
For various good reasons, fixed-rate mortgages form the backbone of the mortgage market. Here are the advantages and disadvantages of a fixed-rate mortgage.
ADVANTAGES
Consistent payments.
Your monthly mortgage payment will never change when you take a fixed-rate loan, which is the most crucial advantage. Fixed-rate mortgages have a principle and interest payment that does not fluctuate throughout its term.
The loan will be amortized.
Amortization is a phrase you’ll hear a lot about when studying fixed-rate mortgages. The time it takes to pay off a mortgage is usually predetermined. With a 30-year fixed-rate mortgage, you’ll be debt-free after making monthly payments for the whole duration of the loan. Fixed interest rates mean that you will know precisely how much you’ll owe at the end of the loan.
DISADVANTAGES
In the beginning, you’ll have to pay a little more.
There will be a difference between the initial interest rate you obtain and the fixed-rate mortgage rate. For the security of knowing that your interest rate will remain low for the duration of your loan repayment, you will pay a little extra.
WILL MY FIXED-RATE MORTGAGE EVER FLUCTUATE?
There are several types of mortgages, but a fixed-rate mortgage is the most common one. You may not be able to predict how much your monthly mortgage payment will be, even if you have a fixed-rate mortgage. With a fixed-rate loan, you can ensure that your monthly principal and interest payments will not fluctuate no matter how long your loan term is (for example, 15 or 30 years). However, you may also be required to pay interest, taxes, and insurance as part of your monthly mortgage payment. As long as you have the same money in your bank account, your tax and insurance payments will not.
CONCLUSION
Fixed-rate mortgages provide stability in an ever-changing market. This article has demonstrated the benefits of fixed-rate mortgages. With a fixed-rate loan, you will not have to worry about your monthly payments altering in the future. If interest rates are low, such as they are now, they can be a wise investment.
