A fixed mortgage is designed to give you the same interest rate that you signed up with for a set period of time. Mostly they are either fifteen- or thirty-year mortgages. You’ll pay less each month with a thirty year fixed rate mortgage, as opposed to a fifteen year fixed rate mortgage. But the more years you have the mortgage, the more years you’ll spend repaying the money with interest. With a longer mortgage term, you’ll be paying much more interest over the life of the loan.
Some fixed-rate mortgages only offer a fixed rate for just one year. Such offers are usually designed for high-risk customers who might not otherwise qualify for a loan. Adjustable rate mortgages usually start out with a low interest rate, but these “teaser” rates usually don’t last for long. Once the fixed interest rate has expired the rate will then start to differ according to the housing market. Unfortunately this is not always a good thing! Of course the disadvantage to a fixed mortgage is that when the housing market lowers its prices, you will not benefit from a lower rate. Those with an adjustable rate mortgage will pay eitherhigher and lower rates depending upon the housing market.
The best part of a fixed mortgage is that your monthly installment is decided in advance. This is great for anyone trying to adhere to a budget, or anyone else where a rise in your monthly mortgage payments would cause problems. If you’re not equipped to take a risk that your mortgage payments may increase at some point in time, an adjustable rate mortgage is probably not your best option. At least with a fixed mortgage you know exactly how much you need to pay every single month.
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