When buying a home, one of the first decisions you have to make is how you’ll pay for it. Like most, there’s a good chance that you’ll apply for a mortgage. Once approved, you must then decide between a fixed rate and an adjustable rate loan.
While there are times when an adjustable rate mortgage makes sense, most people gravitate toward a fixed rate loan. Here’s why.
Consistent monthly payments
With an adjustable rate mortgage, your monthly payment has the potential to vary over time. Maybe it goes up. Maybe it goes down. Either way, it won’t remain consistent. This can make it difficult to budget.
Conversely, a fixed rate mortgage makes for consistent monthly payments. The amount that you pay today will be the amount that you pay next month, next year, and many years down the road. You can plug this expense into your budget and not worry about it changing.
You know how much interest you’ll pay
Since your interest rate remains the same for the life of your loan, you’ll know upfront exactly how much money you’ll pay. Once you know how much interest you’ll pay for the life of your loan, you can decide if that works for you.
Is a fixed rate mortgage right for you?
Knowing the benefits of a fixed rate mortgage is just the beginning of the process. As you continue your search, you must decide if this type of loan is right for you. If the benefits above hit home, you’re on the right path. At that point, you can do the following:
- Contact your mortgage lender or broker: this allows you to ask questions and collect additional information.
- Compare a fixed rate loan to an adjustable rate loan: even if you think you’ve made up your mind, it never hurts to run one last comparison.
- Work the numbers: you know that a fixed rate loan allows for a consistent monthly payment, but you must still run the numbers to determine if they work for you.
Finally, keep in mind that your loan amount and down payment will impact the terms and conditions of your loan. For example, if you don’t put down a minimum of 20 percent, you may find yourself with a higher interest rate.
What are your thoughts on the benefits of a fixed rate mortgage? Have you secured this type of loan in the past? Were you happy with your decision, or do you wish you would have looked into other options?