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Monday 11/20/2017 Mortgage Rates

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Fixed-Rate Mortgages

Are you interested in taking out a mortgage loan? Are you worried about the market's fluctuating interest rates? Do you need to budget effectively? The fixed-rate mortgage (FRM) loan gives you the breathing room and budgeting flexibility that you need.


Typical Features of Fixed-Rate Mortgages

Most lenders of fixed-rate mortgage plans are stringent and prefer customers that are credit-worthy and able to deliver a 20% initial down payment. The Federal Housing Administration (FHA) is known for giving low-income homeowners the opportunity to take part and take charge. They have less strict policies about credit-worthy qualification and down payments that are less than 20%. What characterizes FRMs are the following:

  • Fixed loan period.
  • Fixed monthly interest costs for the entire loan period.
  • The choice between 10, 15, 20, 25, and 30-year loan terms. 

The Advantages of Fixed-Rate Mortgages

Some lenders offer their customers the flexibility to choose the loan term that's best suited to their individual situation. For example, sponsored by Quicken Loans is the YOURgage loan which gives you the chance to choose the loan term you want (anywhere between 8 and 30 years). This can be a life saver if you have a long-term financial plan that you want to stick to and see it flourish.

Other advantages include:

  • Security.
    Should the interest rates of an adjustable rate mortgage loan go through harsh turbulence, the interest rates of a fixed-rate loan will remain unchanged.
  • No unwelcome surprises.
    This gives you the time and space to plan effectively and to build your home equity. Any rebudgeting or change in due course does not have to be based on guesswork.
  • Easy to plan for.
    Since every monthly payment is going to be the same, the loan period is unchanged.
  • Easy to budget for.
    Fixed monthly interest costs for the entire loan period means you know exactly how much you'll be paying five, ten, twenty, or thirty years down the line.

The Disadvantages of Fixed-Rate Mortgages

15-year and 30-year FRMs are the most popular variants of this type of loan. Loan terms, however, are about as much of a choice as you're going to get with FRMs in light of the following drawbacks:

  • Can be more expensive.
    FRMs typically have higher interest rates than adjustable-rate mortgages. Moreover, FRMs in areas where rates are typically high will reflect the same and make budgeting impractical.
  • No welcome surprises.
    Fixed-rate mortgages differ from ARMs in that caps, margins, and indexes - rate limiters associated with ARMs - are not applicable to them after the closing period. The main drawback with this kind of mortgage is if interest rates drop, yours won't. While homeowners with adjustable-rate loans are reaping the benefits of falling interest rates, you'll still be paying the same amount until the end of the loan term.
  • Very little choice.
    ARMs have hybrid loans with different features tailored for unique financial situations, while FRMs do not.

Hybrid Adjustable-Rate Mortgages

Adjustable-rate mortgage loans don't have this quality of interest rate security and this can cause many problems and financial turmoil if the homeowners don't know what they're doing. A homeowner may be able to cover the monthly costs for some time but if interest rates suddenly skyrocket, they might be looking at foreclosure and completely lose the home equity they've built over the years.

Alternatives are available with "hybrid" ARMs which combine the best of both worlds. ARM hybrids combine fixed rates with adjustable rates for homeowners that need more of a customized approach to their loans. A 5-1 hybrid adjustable-rate mortgage, for instance, keeps interest rates fixed for the first five years of the loan before they start to adjust once a year. Other hybrid ARMs include 5-2s, 3-3s, 4-1s, and many others.

 

 

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