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Guide to fixed-rate mortgages

By Jakob Jelling
www.cashbazar.com

Mortgages are considered as the best helping hand for those people who want to realize their dream of owning a home. A mortgage is the loan one obtains from a bank or finance company for buying a house. Mortgages are generally secured loans, hence the risk is less. The newly purchased home is considered as the security for the loan. Mortgages are of different types. But nowadays, the money market mainly concentrates on three types of mortgages – Fixed-rate mortgages, Adjustable rate mortgages and Balloon mortgages.

Fixed-rate mortgages (FRM) are those mortgages which maintain a constant rate of interest till the end of the loan period. That is, in fixed-rate mortgages the interest rate and hence monthly payment will remain fixed for the life of the loan. For example, if you have taken a loan for 15 years, the interest rate or the loan will always be the same for 15 years. Today it is seen that most people opt for fixed-rate mortgages as it guarantees them from the rise in interest rates. Fixed-rate mortgages also allow the borrowers to calculate the monthly payment easily and take a plan to pay off the loan.

In the United States, fixed-rate mortgages are generally given for 10, 15, 20, or 30 years. While in the United Kingdom, the term of the fixed-rate mortgage can be as short as five years, after which the interest rate changes to a variable rate (that is the loan changes to Adjustable rate mortgages).

A fixed rate mortgage is an ideal option for those people who wish to budget their monthly expenses and plans to maintain their home for many years. These types of mortgages help to easily manage and plan one’s monthly budget as the payments will always be the same on every month. That is no worry about any rise in the interest rate. The real advantages of fixed-rate mortgages are when the interest rates rise above the fixed rate on your mortgage. This is because even if there is any fluctuation occurs in the interest rates the monthly repayments for your mortgage remains the same till the end of the loan period.

On the other hand, if the interest rate drops, your fixed-rate mortgage will not drop with them. That is you have to pay the fixed amount of interest even though there is a decrease in the interest rate. This can be considered as one of the disadvantages of fixed-rate mortgages.

Generally, fixed-rate mortgages are simple to understand and can be considered as a better option for first time home buyers. Fixed-rate mortgages offers more stability and the risk involved is too less. These types of mortgages provides easy budgeting and you can regulate your monthly expenses in a proper way as you know accurately what will your interest rate for the coming month or months. Longer term fixed-rate mortgages are also very much affordable.

About the author
Jakob Jelling is the founder of http://www.cashbazar.com. Visit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.

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