Sunday, November 26, 2006

Understanding Fixed-rate Mortgages

A fixed-rate mortgage is a mortgage on which the interest rate is put for the term of the loan. Your interest rate remains the same for the term of the mortgage or for a specified clip period of time. Most people utilize a fixed-rate mortgage. In fact, about 75 percent of all home mortgages have got fixed rates. The chief advantage of a fixed-rate mortgage is that you always cognize exactly how much your mortgage payment will be, and you can be after for it.

A Fixed Rate mortgage will offer you the security of knowing that your mortgage interest rate will not change during the term of your fixed rate. For example, a lender can offer a 30-year fixed loan to a homebuyer at a 6.5% interest rate. The loan is locked in to the 6.5% interest rate, even if the market interest rate rises to 8.0%. Conversely, if the market interest rate lessenings to 4.5%, you will go on to pay the 6.5% interest rate. A Fixed-Rate Mortgage uses the same interest rate toward monthly loan payments for the life of the loan.

Features:

- Straightforward and easier to understand than Adjustable Rate Mortgages (ARMs).

- More secure for the buyer and very popular with first-time home buyers.

- Ideal for anyone who wishes to budget monthly disbursals and programs to maintain their home for respective years.

- Since the hazard to the lender is higher, fixed-rate mortgages generally have got got higher interest rates than Adjustable Rate Mortgages (ARMs).

- Tend to have higher initial monthly payments compared to those of adjustable rate mortgages.

- Fixed-rate mortgages are less flexibleness than adjustable rate mortgages.

With adjustable rate mortgages the interest rate is not fixed, but changes during the life of the loan in line with motions in an index rate. The advantage of an Adjustable Rate Mortgage is that you may be able to afford a more than expensive home because your initial interest rate will be lower. In a fixed-rate mortgage, your interest rate remains the same for the term of the mortgage.

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