When making plans to purchase or refinance a home, you will need to decide whether your mortgage agreement will require you to pay a fixed or a variable interest rate. Fixed-rate mortgages are often the preferred choice for home buyers who do not wish to be caught off guard by sudden economic shifts or changes in personal financial circumstances. The main benefits of fixing your mortgage rate as opposed to signing up for a variable rate are described below.
Steady Monthly Payments
Because mortgages with a fixed rate do not fluctuate over the course of the entire amortization period, your monthly home payments will remain steady until you are able to pay off your loan. Though minor adjustments to your tax and home insurance payments may occur on occasion, the amount of your mortgage loan itself is permanently set at a certain amount. This makes it easy for you to plan your monthly budget and adjust your expenses accordingly. For example, if your mortgage payment is fixed at $900 per month, you can easily plan to set that amount aside each time your bill is due.
Option to Make Additional Principal Payments
Though a fixed-rate mortgage agreement typically covers a 15-year or 30-year period, this type of loan does allow for you to make additional payments on your principal in order to settle your debt at a faster rate. If you are in the early stages of paying off your home and have extra money at your disposal each month, you may wish to apply that money toward the principal as your regular mortgage payment goes toward paying off interest. The option of supplementing your fixed-rate payments with additional funds can shorten the term of your mortgage by at least several years.
Security Against Inflation/Rising Interest Rates
Many homeowners appreciate the security that Fixed Mortgage Rates offer in regard to the continually rising cost of living. Inflation can increase the amount of your utility payments, grocery bills and entertainment expenses, but it cannot affect mortgage payments with a fixed interest rate. Similarly, if interest rates within the home buying industry become higher on the whole, you will not have to worry about paying an increased rate on your home. If your interest rate is fixed at 5.5%, it will remain there even if average mortgage rates rise to 6.5%, for example. In a world where monthly expenses can rise without much warning, the stability of a fixed mortgage payment is very attractive.
Fixing your mortgage rate is highly beneficial if you desire the comfort of knowing that your home payments will stay consistent from month to month. This option is ideal for people who prefer to live on a budget without having to worry about sudden debt increases. Speak with a professional mortgage lender for more information on how opting for a fixed rate can help you in the home-buying process.
Anna Cheswick is an experienced writer within the finance niche. She regularly submits pieces on obtaining and refinancing home mortgages to various blogs, websites and print publications. Anna works diligently to stay informed on current Fixed Mortgage Rates and variable mortgage rates.