What Is A Fixed Rate Mortgage?

When it comes to borrowing money to purchase your dream home, there are lots of options. So, what is a fixed rate mortgage?

What Is A Fixed Rate Mortgage?

When you make the decision to purchase a home, there are lots of factors you need to take into account. The first, of course, is figuring out what type of home you want and then finding it. Of course, you can use our site to do that with our bevy of listings of homes for sale by owner.

The second issue that you will have to focus on is getting financing for your new home. These days, you are bombarded on television and the radio with all types of interesting mortgage offers. These offers are known as teasers as are the loans they put in front of you. Teaser loans are designed to look really good up front, but can be a bear as the years pass and the terms change automatically to less advantageous positions, to wit, interest rates go through the roof. One type of loan, the fixed rate mortgage, never does this.

So, what is a fixed rate mortgage? A fixed rate mortgage is exactly what it says. It is a mortgage that has a fixed interest rate. In practical terms, this means your monthly payment never changes. The reason is your interest rate is the same in the first year, fifth year, fifteenth year and so on.

The advantage of a fixed rate mortgage is stability. You always know what you are going to be required to pay from month to month and year to year. This allows you to budget and project your finances with certainty. Another type of loan is the adjustable rate mortgage. In comparison to the fixed rate, an "ARM" loan is a hedge bet. The initial rate charged on the loan is usually lower than a fixed rate, but it can also go higher than the interest rate charged on a fixed rate if interest rates increase.

Many people went with ARM loans during the recent real estate boom when interest rates were at historic lows. They are now regretting it as rates rise and their monthly payments go through the roof. The people that chose fixed rate loans during the boom have no such concerns.

So, what is a fixed rate loan? It is a loan that gives you stability. If you are in an ARM loan when rates are rising, you should strongly consider refinancing to a fixed rate loan.  To discuss your options, you should speak with a mortgage professional. You can get a free, no obligation consultation by clicking here.

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