Advantages of Fixed Rate Mortgages
Fixed rate mortgages are immensely popular among home buyers in the US when the prevailing interest rate is low. During the recession, interest rates sustained severe hits, pushing the cost of mortgages down. However, the uncertainty in the economy and financial crunch also resulted in dramatic reduction in salaries. Several companies took to mass lay-offs and this further added to the uncertainty in all segments of the economy.
As the economy is slowly finding its feet once more and job security is registering an improvement, there is a renewed interest in the housing market. The good news for prospective home buyers is that the upturn has not yet made a significant impact on interest rates, leaving them at subdued levels even now. This presents a wonderful opportunity if you are looking to buy your dream home with a mortgage loan.
Insulate Yourself Against Future Interest Rate Hikes
By taking a fixed rate mortgage in this current low interest climate, you can insulate yourself against future increases in interest rates. By doing so, you can save a significant amount of money, especially if the rates increase substantially over the next few years. You will get maximum protection as well as the greatest impact of such savings when you opt for long term mortgages such as 30 year fixed mortgages.
Know Your Monthly Outgoing in Advance
A fixed rate mortgage is the easiest loan to keep track of. The monthly outgoing you need to make towards this loan is known right at the time when you take the mortgage. You can plan for this payment well in advance and perhaps even set up a separate account from where this payment is made every month.
As you can prepare for the payment beforehand you can ensure that you always have enough cash to pay each installment on time. In this way, you avoid missing payments and incurring late payment penalties that add-on to your 30 year fixed mortgage rates to hike the overall loan cost.
The Longer the Period the Lower the Monthly Payment
Another advantage you can gain from fixed mortgages, especially the longer term ones, is that the net monthly installment amounts move in inverse proportion to the loan term. Even though 30 year fixed mortgage rates may be higher than the rates charged for 10 or 15 year fixed mortgage loans, your monthly outgo may still be low enough to be easily manageable. This is because the total loan amount is spread over a longer period and more number of installments.
You can afford to invest in a larger home than you can with a short term loan. This is because the bigger price is spread into many more installments, with affordable monthly payments. For those who are just starting out in their careers and draw small salaries, 30 year fixed mortgage rates are much more affordable in this way.
Fixed mortgages bring an array of benefits to prospective home buyers, especially in low interest climates. If you are shopping for a new home then the current subdued economy offers a good opportunity for you to lock in your mortgage at an affordable rate.