Fixed Rate Mortgages Simplified

A fixes rate mortgage is the oldest and most popular mortgage scheme in the market today. A lot of people choose the fixed rate mortgage over the adjustable rate scheme for a number of reasons. Just like the ARM or adjustable rate mortgage, a fixed rate mortgage has its own set of advantages and disadvantages.

Pros

On the upside, a fixed rate mortgage gives the borrower more security in terms of fixed payments through the years. There’s a great probability that interest rates will skyrocket instead of drop as the mortgage matures. With a fixed rate mortgage, you won’t have to worry about paying for more than what you bargained for.

In other words, even if the mortgage interest rate rises from 10% to 15% in five years, you’ll be paying a significantly lower monthly payment compared to borrowers who took their mortgages later than you did.

Cons

On the down side, if the market psychology shifts, and real estate interest rates drop, you will be paying higher monthly fees compared to the accepted mortgage interest rates of the time.

You can probably dodge this consequence by choosing to refinance. However, refinancing also costs you money. You will be paying a hefty some just be altering the terms of your loan. An average of 1 to 3 years as a break even period is already a kind estimate.

Some people who are too hasty in their decisions actually suffer from bigger losses because of refinancing. They end up having to wait for at least five years to break even from the costs of bad refinancing.