With the possibility of a hike in the mortgage rates seeming imminent, numerous home buyers are now contemplating to lock into the best available fixed rate mortgages with a view to avoid paying additional interests. Now, do you also think that the plan of locking into a fixed rate mortgage is tempting?
Actually, people are still unsure regarding whether there will be a hike in interest rate and if it does, when it will be around. Messages in this regard are really confusing to many. However, what is imperative is to have an understanding of what precisely are fixed rate mortgages and what are the long-term benefits you may avail while making an investment to purchase a new home. Looking back at the history of interest rates, it has been seen that whenever the interest rates on mortgages rise, they go up very rapidly. Hence, it is not unusual that there is likely to be a one per cent hike in the interest rates in the ensuing few months.
Below are a number of common questions related to fixed-rate mortgages that may help to solve your queries regarding this vital issue.
Precisely speaking, the most important plus point of having a fixed rate mortgage is that you will be required to pay an equal amount of interest every month. This is particularly significant at the time when it is difficult to foresee the interest rates. On the contrary, when there is a hike in the interest rates, people having adjustable or variable rate mortgages are required to pay bigger amounts every month. In fact, if you are having a fixed rate mortgage, you are certain regarding the amount of money you need to pay every month, irrespective of the changes in the economy or whatever may be the prevailing interest rates.
The major problem of having a fixed rate mortgage is that compared to variable rate interests, you will be required to pay a comparatively higher rate of interest. As discussed above, if you have a fixed rate interest, it means that you have to continue paying an equal amount as interest every month. This is definitely beneficial when the rates of interest are on the rise, but not favourable when the interest rates drop below the rate you are paying for your loan. In the second instance, you will be paying a higher interest rate than what is prevailing in the market. There is always an option of refinancing your fixed rate mortgage with a view to avail the best prevailing fixed rate home loan, but this is certainly not a very feasible alternative. It is not always viable because refinancing (cancelling or renewing it before its amortization period) your fixed rate mortgage may involve certain fines. Therefore, it is advisable to consult a mortgage professional before you go ahead and seek a refinancing.
Before you decide to lock into a fixed rate mortgage, it is essential that you consult a well-informed mortgage expert who would help you to take the appropriate decision. In general, if you want a peace of mind while having to pay an interest amount every month, you will find that fixed rate mortgages are more appropriate. This is particularly because the interest rate remains the same throughout your mortgage and you are aware how much interest you need to pay every month.