Mortgage Dictionary -> Fixed-Rate Mortgage
By now, you've probably heard tons of talk about the different types of mortgages out there, especially because of how the housing market is in the United States. You might be tempted by the low payments of interest-only or adjustable rate mortgages, and so you may be overlooking a traditional type of mortgage that is far less risky than those two mortgages: the fixed-rate mortgage. It's time to educate yourself on what it is and why to get it rather than the other types of mortgages.
What is a Fixed-Rate Mortgage?
Fixed-rate mortgages are loans in which the interest rate never changes. It is effectively "locked" in for the entire length of the mortgage, typically 15 or 30 years. As a result of this, the monthly payments for the mortgage never change, unless other things such as property taxes or home insurance costs go up. This only applies if property taxes and home insurance are wrapped in the mortgage. Otherwise, it does not change.
Why Get a Fixed-Rate Mortgage?
There are actually a lot of reasons why to get a fixed-rate mortgage as opposed to getting an adjustable rate mortgage. The first is that it's a lot less risky to get a fixed-rate mortgage. While an adjustable rate mortgage features an interest rate that can greatly change from year to year or even month to month, a fixed-rate mortgage's interest rate never changes. This means that an ARM's payments may increase a lot over the life of the mortgage, while a fixed-rate mortgage's rates will not.
Another reason why to get a fixed-rate mortgage is that it's typically cheaper in the long run. This is particularly the case with how the economy is right now. A fixed-rate mortgage's rates will never change, so payments won't go up either, whereas other types of mortgages may reach huge levels of cost in the coming years.
Yet another reason to get a fixed-rate mortgage is that there are far fewer surprises with it. Unless you like being hit with sudden hidden fees or interest rates that double, you'd probably be far better off with a fixed-rate mortgage.