Fixed Rate Mortgages Are Also Somewhat Limited In Their Scope

Category: Finance.

The fixed rate mortgage has a long history and is considered the standard of home loan financing instruments.

There is a reason for that loyalty. Long before the adjustable rate mortgage came along the fixed rate mortgage was being used and is still being used by many home buyers. One of the major advantages to using this type of mortgage is that home buyers know almost to the penny what their monthly home payment will be over the course of the loan. Along with the knowledge of what the monthly home payment will be during the course of the loan, fixed rate mortgage borrowers also have more emotional security than those using ARM s. This is in stark contrast to how adjustable rate loans act. A borrower under an adjustable rate mortgage may have no idea what the payments for the home will be in future and, this can lead, in some cases to huge problems later on. Fixed rate borrowers seldom have to face this dilemma.

Some ARM interest increases can be so high that the home owner cannot make the payment and may have to go into foreclosure, losing the home and the equity that has been built up in the home. One of the disadvantages to this type of mortgage is that it can be somewhat harder to get than an adjustable rate mortgage for some buyers who have less than excellent credit. Another disadvantage to this type of mortgage is that if interest rates in general drop, the borrower may end up paying more than others are paying who are locked in at the lower rate. This is not always the case, in general, but, lenders are more apt to work with good credit buyers in the fixed rate arena. The only real way to adjust this type of mortgage is to refinance, which can be costly to the home owner. Fixed rate mortgages are also somewhat limited in their scope. In some cases, a refinance is, however a very good idea and buyers should look into it.

What this means is that you may find that you have fewer options with a fixed rate than you might have with an adjustable rate mortgage. As mentioned above, a fixed rate mortgage is a well defined and easy to understand method of financing a home. This should not be considered a disadvantage, because there are, though only so many things that a bank or mortgage lender can do with this type of loan program. Buyers who want to know what their payments will be during the course of the loan should seriously consider using this type of financing. If your credit is fairly good and you plan to stay in the home for a long period of time, this type of mortgage may be the best deal for you and your family. One only needs to look at the news from time to time to see how volatile the adjustable rate market can be for home owners.

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