What is a fixed rate mortgage?
This is a fully amortizing mortgage loan, where the interest rate remains the same through the term of the loan.
The payment amounts and the duration of the loan are fixed, so borrowers have a consistent, single payment.
A fixed rate mortgage is generally more expensive than an adjustable rate mortgage.
Borrowers usually make a choice based on the loan term, the current interest rate and the likelihood that the rate will increase during the life of the loan.
What are the advantages of a fixed rate mortgage?
The borrower is protected from sudden and potentially significant increases in monthly mortgage payments in interest rates spike.
These mortgages are fairly easy to understand and aren’t riddled with complex terminology.
It makes budgeting easy for homeowners.
Generally good for first-time borrowers, a 30 year mortgage is most popular because it offers the lowest monthly payment. As a fixed rate mortgage, borrowers have the advantage of knowing exactly how much they can expect to pay throughout the term of a loan.
A fixed rate mortgage lets you accurately predict the amount borrowers will have to pay each month for their home loan.
Disadvantages of a fixed rate mortgage:
As a borrower, you won’t get to pay less when interest rates decline.
Fixed rates are usually more expensive than adjustable rates because there is no rate break.
If you have a fixed rate and you want to benefit from falling rates, you would have to refinance.
The mortgage can’t be customised to suit your unique situation.
Factors to consider when shopping for a fixed rate mortgage:
Check the current environment to see if the rates are high or low.
Calculate if you could still afford your monthly payment if interest rates rose steeply.
It’s a good solution for homeowners planning on staying on the property for a long period of time.
