Benefits and Drawbacks of Choosing a Fixed-Rate Mortgage
With mortgage rates at an all-time low, many aspiring homeowners are looking to lock in these record-breaking rates with fixed-rate mortgages. A fixed-rate mortgage is a home loan option where the borrower pays a set monthly payment without interest rate changes throughout the entire life span of the loan despite market fluctuations. Before you jump on the fixed-rate bandwagon, familiarize yourself with the benefits and drawbacks of choosing a fixed-rate mortgage so that you can determine what mortgage option is best for you. Below, we outline some of the main advantages and disadvantages of choosing a fixed-rate mortgage.
Benefits of choosing a fixed-rate mortgage
No surprises: One of the main benefits of opting for a fixed-rate mortgage is that your monthly payments won’t suddenly shoot up if interest rates rise.
Ability to lock in a low rate: In situations where interest rates are low—like they are currently—fixed-rate mortgages allow aspiring homeowners to lock down low rates for considerable savings across the life spans of their loans.
Simple budgeting: Because payments on fixed-rate mortgages stay consistent from beginning to end, they make budgeting a lot easier than if the payments fluctuated—as is the case with an adjustable-rate mortgage.
Easier to compare options from different lenders: Because payments and rates are stable with a fixed-rate mortgage, it’s often easier to compare loan options from different lenders so that you can find the most advantageous option for you.
Drawbacks of choosing a fixed-rate mortgage
Higher introductory rate than ARMs: Adjustable-rate mortgages typically have lower rates during the introductory period of the loan, which isn’t an option for fixed-rate mortgages.
Inability to capitalize on falling interest rates: In the case that interest rates drop even lower than they were when your fixed-rate mortgage was issued, you won’t be able to take advantage of them unless you go through the process of refinancing.
Difficult to qualify in some instances: If interest rates are high when you apply for a fixed-rate mortgage, qualifying may prove difficult due to the less affordable payment requirements.
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