Why should you consider a fixed rate mortgage to finance your home purchase? A fixed rate means that you do not have to worry about fluctuations in th...
Why should you consider a fixed rate mortgage to finance your home purchase? A fixed rate means that you do not have to worry about fluctuations in the market that could drive your rate up. Your monthly housing payment will always stay the same, since your interest rate will be the same. There is some peace of mind to be gained from having a rate that is constant.
When considering a fixed mortgage, the first thing to do is research current interest rates. If you obtain financing when fixed rates are high, you will always be paying this high rate, making it unwise to purchase during certain times. Keep the historical rate of interest on mortgages in mind when you are researching what is best for your situation.
In the early 1990s, fixed rates in the UK were teetering at about 10%. Today, a fixed rate can be found in the low to mid 4 percent range. Clearly, it would have been unwise to purchase a home with fixed rate financing twenty years ago, but is it any wiser today?
One thing to note when considering a fixed mortgage is that there is often a hefty down payment required to lock in such a rate. The down payment generally ranges from 20-40% of the purchase price of your new home. The benefit to putting down such a high amount of money and locking in a low, fixed rate is that you'll certainly save money in the long run, paying less on the principal in general with no interest charged on the amount you put down, plus paying less interest overall as your rate will stay low. Since fixed rates at the moment are historically low, it could be a good financial decision to enter into a fixed rate mortgage, provided you have the money saved to put down on a home.
Does purchasing a home using fixed rate financing mean you will never be able to change your interest rate? Not necessarily. Although your current financing terms will dictate that your home loan be charged the same interest rate throughout the life of the loan, you do still have the option of refinancing down the road. When might refinancing be a viable option for you? Typically, consider a refinance only when it would save you at least half a percent in interest. Further into the life of the loan, it will likely not be financially wise to refinance, as the interest saved may not be worth the time, effort, or fees.
Ready to find out more about fixed rate mortgages?
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