Which mortgage to get is one of the most important financial decisions you will have to make. A fixed-rate mortgage seems like a good idea to a lot of people. But what is a fixed-rate mortgage, and why do so many people choose it? If you don't know much about mortgages, this article will tell you more about fixed rate mortgages and what they can do for you.
What does it mean by "fixed rate"?
A fixed-rate mortgage is easy to understand and does exactly what its name says it will do. A fixed-rate mortgage has an interest rate that stays the same over the life of the loan. This means that your monthly payments will also stay the same, though they may go up or down due to inflation.
Why get a loan with a fixed rate?
Fixed-rate mortgages are popular because they give people security and peace of mind. If you have a fixed-rate mortgage, you know that your monthly payments will stay the same, so you can plan your finances well for both the short and long term. If you have a mortgage with a variable interest rate, your payments may change based on how the market is doing. This can mean that you pay less, but it usually means that you pay more each month. When there is a lot of competition and the fixed interest rate is lower than that of tracker or variable rate mortgages, that is the best time to get a fixed rate mortgage.
Is there anything bad about it?
Getting a fixed rate mortgage does not come without problems. The biggest problem is that the interest rate is usually higher than that of variable-rate mortgages. The extra security will cost you more in interest payments over the life of the mortgage. Also, the "fixed" rate is usually only fixed for a certain number of years, usually 2 or 3, after which it can be raised and then fixed for another period. This could mean that your mortgage rate is low right now, but it could go up in the future.
Who needs a fixed rate?
Fixed rate mortgages are a good choice for many people, even though they have some problems. If you have a fixed monthly income and a tight budget, you can't afford for your payments to go up. If your monthly payment is set, you know you can make it even if the national interest rate goes up. Also, choose a fixed-rate mortgage if you can get a deal where the starting interest rate is lower or the same as that of a variable-rate mortgage.
How to decide?
If you're still not sure if a fixed-rate mortgage is right for you, talk to a financial advisor who works on their own. They can help you find the best deal and also tell you if the base interest rate is going to go down or up. This will tell you whether you should get a mortgage with a fixed rate or one with a variable rate.
