While a fixed-rate mortgage offers certainty in terms of interest rates, many are still hesitant to consider this because of its higher monthly payment. The said home loan program has a higher interest rate, which then results in higher monthly payment. This is the cost of the financial certainty provided by the loan.
Constant Rates and Payment
The main benefit of a fixed rate mortgage is the same interest rates over the course of the loan. Even if the economic factors change or loan rates increase, the interest rate on your mortgage remains the same. This also means that your monthly payment will not change. This eliminates the risk that you may need to pay a higher monthly payment over the life of the loan.
Other loan programs like the adjustable rate mortgage (ARM) and interest-only mortgage have payments that are subject to change, with the possibility of increasing throughout the life of the mortgage. If the rates suddenly increase, some borrowers may not be able to afford the payments. This is especially for those who experienced changes in their financial circumstances after obtaining the mortgage.
Loan Term Options and Less Risk
There are also plenty of mortgage terms available with this loan program. Lending companies usually offer 10, 15, 20, 30, and 40 years. A shorter term comes with lower interest rates, while a longer one has high rates. A shorter term with a low rate decreases the total interest expense over the life of the loan. This, however, means paying a higher monthly payment, because you’re paying back the loan balance in a shorter amount of time.
If you’re not comfortable taking risks, you can find relief with a fixed rate mortgage. This can let you sleep better each night, knowing that your rate and payment will remain constant. If you have a 15-year fixed rate loan, this means 15 years of certainty. Your loan and payment will not be affected by fluctuations in interest rates.
While a fixed-rate loan has a higher monthly rate and monthly payment, it offers certainty with constant rates and payments. If your think this mortgage program is right for you, talk to a lender to know more about your options.