What are the advantages and disadvantages to having a fixed rate mortgage?
A 30 year fixed mortgage is the most popular mortgage in America. This is because it provides borrowers with the certainty of knowing that their mortgage payments (p & i) will stay the same for the duration of the loan.
|The payment (p & i) never increases.||Borrowers do not pay less when rates improve without refinancing.|
|The rate stays the same.||Borrower may pay a higher interest rate to have the rate fixed.|
Borrowers often confuse the “fixed” element as a commitment that the entire mortgage payment will stay the same over the life of the loan. Since the taxes and insurance make up a portion of the escrow payment, and these charges will fluctuate over the life of the loan, ALL fixed rate mortgages are subject to some payment fluctuation.
In addition, many borrowers do not realize that they pay a premium (a higher interest rate) for the fixed rate mortgage. In the event that the borrowers select a fixed rate mortgage and do not stay the duration of the loan, they often pay more than they would have with an ARM (adjustable rate mortgage).
Unfortunately, few American homeowners keep mortgage 30 years. Hence, many borrowers pay the additional premium for a fixed rate mortgage that is never utilized. Nevertheless, when borrowers see a property as a long-term investment and they are concerned about payment affordability, the fixed rate mortgage may be a sound option.