If you are planning on purchasing a new home and will be obtaining mortgage financing, you will have many different mortgage loan programs to choose from. It can be confusing to decide which will be best for your situation with all the different choices on the market today. However, the vast majority of them are fixed rate mortgages with a 15 year or 30 year term. These traditional mortgages are amortizing, which means that you pay off the entire loan amount by the end of the term of the loan. While these are still the most common type of loan, there are advantages and drawbacks to these mortgages. Depending on your financial situation, and the prospects of changes in your financial future, a fixed rate mortgage may or may not be the best product for you.
Below are some of the pro's and con's of fixed rate mortgages:
Interest rate on your mortgage cannot be increased for the life of your loan
Monthly payment will remain the same for the life of the loan
Loan will be completely paid off by the end of the term
Fixed Rate mortgages are very common and standard and finding a lender who offers this loan will be easy.
Fixed monthly payment amount may be difficult to make at the start of the loan
Large percentage of payment goes to interest payment in first years of the loan
Usually has a higher interest rate than a variable rate loan initiated at the same time
Interest rate cannot be reduced as in some variable rate programs
Maybe harder to qualify for, as higher income may be required
Depending on your financial situation, a fixed rate mortgage may be the best solution for you. If you can afford the monthly payment required to obtain the loan, then the fact that your interest rate and monthly payments will stay the same for the life of the loan while give you peace of mind and make monthly budgeting easier.