Safe Bet? Fixed Rate Mortgages Explained

Fixed Rate Mortgages, as the name suggests, are mortgages that have, for the duration of the loan, a fixed interest rate. They are normally spread throughout a longer span of time than Adjustable Rate Mortgages and Balloon Mortgages, and most commonly run in 15-year and 30-year time denominations.

The main draw of Fixed Rate Mortgages is security. It appeals to the inherent play-it-safe sensibility since it offers rates that are immune to sudden market surges. There are no dangers of being victimized by volatile market pricings or ballooning prices. Interest rates stay within current market norms, so the timing is important with Fixed Rate Mortgages, as current rates normally dictate if having a Fixed Rate Mortgage is better than an Adjustable Rate Mortgage. They also are safer for borrowers without much financial background since most Fixed Rate Mortgages are straightforward and stern, minimizing loopholes where one maybe robbed blind by market-dependent factors and hidden traps. This normalizes monthly budgeting, owing to its consistency and works well with stable people with fixed incomes.

Fixed Rate Mortgages are basically split in two: the 15-year and 30-year periods. Both offer rate security but have vast time-dependent repercussions. Both have advantages and disadvantages that create an option for the less foolhardy of us.

Advantages of a 30-year fixed rate mortgage:
- Lower monthly payments that open up finances for other expenses and investments

- Higher interest bills give larger tax deductions

- Lower monthly payments versus 15-year Fixed Rate Mortgage, due to interest being amortized over a longer period of time

Disadvantages of a 30-year fixed rate mortgage:

- Lower equity increase because most initial annual payments go to interest, dousing any hope of acquiring secondary mortgages in the initial years.

- The overall interest bill is larger than the 15-year period due to the length of time

- Higher interest rates versus the 15-year Fixed Rate Mortgage because of faster loan span.

Advantages of a 15-year fixed rate mortgage:

- Payment time expanse builds higher home equity, opening up the possibility of acquiring home equity loans

- Interest bills are dramatically lower than 30-year loans.

- Lower interest rates

Disadvantages of a 15-year fixed rate mortgage:

- Buyers are restricted to cheaper houses, which they could have afforded with a 30-year mortgage.

- Higher monthly payments

There are, however, options for the consumer, such as re-financing the loan when interest rates dip
significantly. These options are dependent on the contract and should be seriously considered before going into a fixed rate mortgage.

Advantages of a Fixed Rate Mortgage

- No surprises on payments. Each bill will contain same interest rates.

- Budgeting-wise, budgets need not operate on revolving interest rates.

- It is the simplest mortgage to understand, with clearer terms and less trap doors to look out for.

Disadvantages of a Fixed Rate Mortgage:

- It would be hard to take advantage of low interest rates, having to re-finance and pay additional closing fees.

- High-rate environments highlight the sheer costliness of the deal.

- Basically the same from borrower to borrower and offers less customization options.