Understanding fixed-rate mortgages

While there are many different permutations of mortgages, fixed-rate and adjustable-rate mortgages tend to be the most popular. This guide will define fixed-rate mortgages (FRMs), and explain the pros and cons associated with them.

Simply defined, fixed-rate mortgages offer an unchanging interest rate across the life of the loan. A stable interest rates guarantees that monthly payments will never rise. This kind of stability is very appealing, and is the main reason that FRMs are the most popular type of mortgage.

The downside, of course, is that while the interest rate will never rise, it will also never fall. If market interest rates lower considerably, you will be locked in the terms of your FRM unless you choose to refinance.

Sometimes, borrowers base their mortgage decision on market predictions. In other words, they look to expert opinions regarding whether interest rates are more likely to rise or fall. While market predictions can be helpful, there is no guarantee that they will be accurate.

Fixed-rate mortgages are usually repaid over a long period of time, making them a good choice for anyone who doesn’t anticipate a move. Usually, you will be asked to choose between a fifteen and thirty year repayment term. Your decision will depend largely upon cash flow. People with less cash tend to choose thirty-year repayment, which features lower monthly payments. People with more cash tend to choose fifteen-year repayment, which will help them build equity faster.

Finally, FRMs can be a good choice for borrowers who prefer simplicity. The terms are usually straightforward and easy to understand. ARMs, on the other hand, are a little more complicated.