Taking out a mortgage is one of the biggest life decisions for many individuals, as it commits them to a property for years, perhaps even decades. We all want to own a place of our own, but no one wants to commit to a mortgage that strains their budgets. It's important to understand the difference between fixed and variable rate mortgages to pick one to help you attain your homeownership goal while simultaneously keeping your balance sheet strong. Start revealing the differences now!
Fixed Rate Advantages
Fixed rate mortgages provide individuals with the security of a mortgage payment that always remains the same, which in turn eases budgeting for homeowners. This is due to the fact they now know what their mortgage payment will be for as long as they have the loan, which decreases the likelihood of rising payments placing homeowners in financial difficulty. However, borrowers should note fixed-rate loans only protect rising principal and interest payments. There is no type of mortgage loan, fixed or variable, that can protect homeowners from increased property taxes, increased insurance costs, runaway homeowners association fees, and special assessments.
Another of the primary fixed rate advantages is protection from interest-rate increases, which makes fixed-rate mortgages particularly attractive in a low interest rate environment. Buyers can afford a higher priced property while locking in the low rate, and when interest rates rise, fixed-rate mortgage holders feel no impact. First-time homebuyers may feel more comfortable with fixed-rate loans because they are straightforward, leaving no guesswork. It may be difficult for first-time homebuyers to estimate the total costs of home repairs, utilities, and taxes or assessments, and having a stable mortgage payment makes this adjustment easier.
Continue reading to reveal the major disadvantages of fixed rate mortgages.