Home Loan Refinance: The Advantages and Disadvantages of Switching to Fixed Rate Mortgage

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what is fixed rate mortgageDo you think you are qualified for and/or have a need for a mortgage refinance? Do you plan to apply for a home loan refinance? Are there details in your life, particularly financial, where you feel the need to explore a mortgage refinance or home loan refinance? Do you think it will be advantageous to you?

Each homeowner has different reasons for planning on home loan refinancing. Some of these reasons include lowering the monthly amortization, reducing the home loan term, and obtaining better interest terms and rates.

Do you have a reason why you need to get a mortgage refinance? Do you know what is in it for you if you make a switch to fixed rate mortgage from your original adjustable rate home loan?

Presented in this article are the advantages and disadvantages of a fixed rate mortgage to help you weigh your options and to guide you in deciding whether or not a fixed rate mortgage is a better choice for you.

First off, let us discuss what a fixed rate mortgage is and break down what makes it up.

What is a Fixed Rate Mortgage

refinance mortgage loansA fixed rate mortgage is a home loan that has a fixed interest rate for the lifespan of the home loan. This means under a fixed rate mortgage you will enjoy a stable monthly payment. Your total monthly payment, which includes the interest rate and the money you borrowed or the principal, will stay the same throughout the term of the mortgage.

Fixed rate mortgage is protected from fluctuating interest rates. With a fixed rate mortgage, you as a homeowner, will not have to worry about the changes and varying of loan payments as the interest rate movements and trends fluctuate.

There is less worry under a fixed rate mortgage in that you can accurately project the amount you will have to pay on a monthly basis for your house loan until the completion of payment. You will be able to correctly identify and determine your allocation of budget. A fixed rate mortgage allows for you to plan ahead and helps you maintain your standard of living.

Since the monthly payment for your home loan is a fixed amount, you are guaranteed payment stability and you are protected from the potential increase in interest rates within the term of the mortgage.

Otherwise, you won’t know when the increase in interest rates may occur and at with what frequency, as it depends on interest rate movements and trends. Through a fixed rate mortgage, there will be no unwanted surprises for you in terms of the increase in interest rates.

You can ensure paying the same monthly payment for the entire home loan term. If you are the type of borrower who prefers security, stability and accuracy in future payments, without second-guessing how interest rate trends will affect you, then fixed rate mortgage is the type of mortgage for you to consider because it is guaranteed.

If you project a significant rise in interest rate movements in the coming years, you should want to have a fixed rate mortgage, which you can keep the interest rate which you agreed to at the beginning of the home loan.

Also consider that if you’re borrowing when trends with interest rates are low, remember that locking in a low rate could save hundreds on monthly payments and thousands on the overall amount borrowed through the life of the loan.

The Other Advantages of a Fixed Rate Mortgage

Aside from the predictability, certainty, accuracy and security which a fixed rate mortgage has to offer you, it also allows for you to pay off some of the principal each month you pay for your amortization in addition to the interest, unlike other alternative financing means.

Therefore, you will actually make progress within the period of time as you pay off your loan balance. This shall result in a significant increase in your home equity.

As you carry on paying off your monthly mortgage, there are chances at reduction of your repayments and the total interest to be paid over the mortgage term, as may be decided on by your lender.

These are the other advantages of a fixed rate mortgage.

Some Disadvantages of a Fixed Rate Mortgage

refinance mortgage loans and its advantagesWhile you save yourself from paying more in the occurrences of interest rate movement hikes, you may also potentially miss out on paying less when interest rate movement goes down. You will not be able to benefit from these falling rates.

In addition, a fixed rate mortgage does not usually have the feature of individual customization which creditors offer in other alternative home loans. In this light, there may be more restrictions on making additional payments when you wish to so that you may lower your future monthly loan balances.

So, is a fixed rate mortgage good for you?

When Will a Fixed Rate Mortgage Be Good for You to Choose or Switch To?

how interest rates varyA fixed rate mortgage will be a good choice or solution for you if you plan to stay in your mortgaged residential property long term.

There will be no surprises when it comes to interest terms and rates and a fixed term home loan is particularly advantageous, and even recommended for first time borrowers, because this type of mortgage is easier to understand, especially if you are still trying to become familiar with how mortgages work and are getting accustomed to the commitment and demands which come with getting a home loan.

Just like any other type of loan, a fixed term mortgage has its share of advantages and disadvantages. Ultimately, it is up to you if a fixed rate mortgage will be the better option.

You should weigh your decision on your individual circumstances such as your financial health and goals. Remember to always do your homework and necessary research. Assess and evaluate your situation. Get assistance from financial experts and real estate brokers. All these should help you arrive at the right decision for you and your family.