Fixed Rate Mortgage
If you are interested in buying a house but don’t have enough money, there is nothing to worry about. You can get that extra cash as loan from various money lenders. Though you will have to pay for the down payment, but still the loan will compensate the extra money requirement.
The markets go up and down with time, and so do the interest rates. To avoid this risk of fluctuating interest rates, people prefer fixed rate mortgage loans. Fixed rate mortgage means that the rate of interest will not be affected by anything, and will remain the same as the time of mortgage contract. These loans are generally taken for long term, especially when the borrower plans to keep the property for a long time. The best part of taking fixed rate mortgage loans is that you are aware of the amount of the monthly installments and can plan your expenses as well as savings as per that. There are a few duration options available for fixed rate mortgage; 30 years plan and 15 years plan. Other plans for 10 and 20 years are also available. This is the most suitable plan for generally all.
Advantages of the 30 years fixed rate mortgage:
- One knows the monthly installments and it remains unchanged throughout the loan duration.
- Opting for 30 years plan will require very less monthly payment, which can easily be afforded by most.
- Your interest rate will remain the same even when the current rates are increased.
- Through all these years, the equity (value) of your house gets increased.
- There is no uncertainty of your monthly installments.
- You get income tax rebate for a longer period.
Disadvantages:
- The rate of interest will be higher as compared to the 15 year plan.
- Because of the long duration payment plan, the equity of the house also increases slowly.
Advantages of the 15 years fixed rate mortgage:
- Interest rates are lower as compared to 30 year plan.
- Interest rate doesn’t change throughout the loan repayment duration.
- Due to the shorter duration, the equity for the house increases fast.
Disadvantages:
- Higher monthly installments may restrict people from opting for this plan.
- This higher payback will leave no space for the borrower to invest anywhere or buy something new.
One should always seek guidance from an expert to decide the best option that suits him.