A fixed rate mortgage is a normal loan with a fixed interest rate and fixed equal monthly payments for the entire period of the loan. The main appeal of a fixed rate mortgage is that you know exactly what your mortgage payment will be for the life of the loan and this type of loan is perfect for anyone who likes to budget monthly expenses and also plans to keep their home for many years. The fixed rate mortgage is the most common and they are usually for a 15 - 30 year term. They all use real estate as collateral.
The Pros & Cons
There are benefits and drawbacks to consider when deciding if a fixed rate mortgage is right for you. The disadvantages of a fixed rate mortgage is that interest rates are usually higher than a variable rate loan and if interest rates drop you will be tied into your set higher rate until the end of the agreement. An advantage of a fixed rate mortgage is a lower interest payment if the mortgage is taken out in a period of low interest rates. However, a fixed rate mortgage is not for everyone with its higher interest rates and therefore a reduction in your buying power.
Pick Your Time
The fixed rate mortgage is the most sought after loan option that is currently available. The monthly repayments are calculated based on the initial interest rate agreed and will not change during the life of the loan. The conventional wisdom is simple: When interest rates are low, homeowners should seek to lock into the bargain with a long-term, fixed-rate mortgage. They are also an excellent refinance option at such times. Also, in times when low long-term interest rates are forecast, refinancing to a fixed-rate mortgage can be a smart financial move. As a general rule, the longer the fixed term the higher the rate of interest will be.
Consumers mostly seem to prefer long term fixed rate mortgages compared to variable rate mortgages by a ratio of 82 to 18 percent with 30 years being the most common term. Short term variable rate mortgages seemingly have become less attractive for the majority of borrowers. At the start of a term for any fixed rate mortgage, you will repay mostly on the interest portion of your loan whereas towards the end of the loan, mostly principle is repaid
A fixed rate mortgage is very popular with those that want the peace of mind of fixed repayments for a specified period or for the life of the loan and is an extremely stable choice for property finance.
If you need more information or resources to help research for a planned mortgage or 2nd Mortgage, please visit http://www.2ndmortgage-info.com/.
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Article Source: http://EzineArticles.com/?expert=Mark_J_Emslie
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