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Fixed Rate Mortgage

For many people buying is a home is one of the biggest financial decisions they’ll make in their life.  There are so many options to consider, but you may have finally been leaning towards a fixed rate home loan.  However, you maybe asking yourself what exactly are fixed rate home loans, what are the advantages and disadvantages and why are they so popular?  

What is fixed rate home loan?

A fixed rate home loan is fairly simple and straightforward.  Your mortgage will have an interest rate that is locked for the life of the loan.  Your monthly payment will never change and remain for the next 15 or 30 years, depending on the term of the loan.  Keep in mind that many lenders require you to pay into an escrow account for your PMI (mortgage insurance), home owners insurance and property taxes.  Therefore even though your mortgage may stay the same, your home owners insurance and property taxes could increase or decrease over time.

What are the advantages with a fixed rate home loan?

The main advantage is that your rate is fixed for the life of the loan.  You won’t have to worry about your mortgage increasing.  However, as stated above your monthly escrow (which includes and your home owners insurance and property taxes) could increase or decrease over time, which changes your total mortgage payment.

Another advantage to your rate is fixed for the life of the loan; it allows you to plan your budget for the future so you don’t have to worry about your rates shooting up if the economy is strong.  No need to worry about your mortgage jumping from $1,500 per month to $2,000 per month.  

Over time it’s assumed that your salary should increase and inflation will increase so your fixed rate mortgage will be easier to pay.  $1,500 now per month will worth less 10, 15, 20 years from now.  The buying power of $1,500 will be less.

What are the disadvantages with a fixed rate home loan?

The disadvantage with a fixed rate home loan is that the interest rates are normally higher than a variable rate mortgage.  The security of a fixed rate mortgage comes with a price.  Also, over time your fixed rate maybe higher than the market rate.  However, this may not be a problem if it makes sense to refinance your loan.  If you plan not to live in your home long term (less than 5 years) a fixed loan may not be right for you.  You may be able to get an adjustable rate that is less and the interest rate locked for 5 years.  But keep in mind that your situation or the economy could change in 5 years.   You may change your mind and not sell your home or the housing market may tank making it difficult to sell your home.

Who should get a fixed rate home loan?


You should consider getting a fixed rate home loan if you have a tight budget and/or live of a fixed income.  Also, if you want peace-of-mind knowing that your monthly mortgage will be the same very month; a fixed rate home loan is the way to go.  If you are still uncertain which loan is right for you, consult with a financial advisor.  They can look at your currently salary, debt, cost of house, how long you plan to live in home and other factors to determine the best options for you.

 

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Comments

I am a male citizen of the Republic of Botswana aged 40. I am interested in running a cash loan business, and kindly assist me find someone interested in investing his monies in cash loan business - who will be my partner e.t.c. Any company willing to work with me its welcome

 

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