Fixed Rate Mortgages

Fixed Rate Mortgage

As the name suggests, a fixed rate mortgage is an arrangement under which the sum borrowed is repaid over an agreed number of years, at a constant rate of interest, agreed at the time the mortgage loan is negotiated.

Many people prefer fixed rate mortgages because they are not subject to interest rate fluctuations, so they are better able to control their finances. Fixed rate mortgages enable people to plan ahead, without the possibility of rising interest rates creating hardship.

As with other types of mortgage, a fixed rate mortgage may run for differing terms, to suit the applicant. Loan terms of between 15 and 30 years are fairly common, and either could be suitable for particular circumstances. Obviously the monthly repayments would be higher for a fixed rate mortgage over the shorter term, but the total outlay would be considerably less than for a longer term deal. It is really a case of what you can best afford, in consideration of your present and future circumstances.

Fifteen Year Fixed Rate Mortgage

One of the advantages of a shorter term fixed rate mortgage, is that you build up a real stake in your property, quicker than with a longer term arrangement. Therefore, if you chose to sell a property, against which you borrowed $100,000, after a period of 7 years into a 15 year fixed rate mortgage, with an interest rate of 7%, you would have about $66,438 outstanding on the loan. For a 30 year fixed term mortgage, at similar rates the amount outstanding after 7 years would be $91,280, which by any standard is a colossal difference. Of course there may have been significant swings in property values over the 7 year period in question, but that really is another matter.

The major disadvantage with a shorter fixed term mortgage, is the increase in the monthly repayments. For instance, in the example quoted above, the repayments for the shorter period would be around $898 per month, but for the longer term they would reduce to $665. So there really is a lot to consider. It could be that you could afford a smaller home, with a fixed rate mortgage over the shorter term, but family requirements could make such an arrangement impractical.

Thirty Year Fixed Rate Mortgage

A longer fixed term mortgage, is the preferred option for some people, and could give them the opportunity to buy a house that might be beyond their reach with a shorter term arrangement. People have been surprised, by the relatively small amount they have repaid against the sum borrowed, in the early years of a longer fixed term mortgage, but that is the way it works, and it is as well to understand the implications beforehand. That is not to say that longer term arrangements are unsuitable, as there is little doubt that they provide the best opportunity for some prospective home buyers.

Financial management and planning, is no more crucial than when considering the best mortgage, to suit your own particular circumstances. Fortunately, there are many sources of advice including qualified and reputable advisors, useful books, magazines, libraries, and the Internet. Friends and family are frequently a source of sound advice, but even they should be tempered with professional guidance. Buying a home of your own is the ambition of many young people, but their enthusiasm should be matched by a willingness to gather as much information as possible before entering into any sort of contract. That is the best way to reach a successful conclusion, to what may well be the most significant expense, you will ever incur.