Fixed Rate Mortgages
A mortgage is a loan you can obtain from a bank, building
society or mortgage lender, which is then used to pay for
a home and any land it sits on. The house and the land serve
as collateral for the loan - which basically means if you
don’t make your payments on the loan the lender can
then take the home away from you (repossess) to cover your
missed payments. Because mortgages are such large loans –
probably the biggest financial commitment most people will
ever make – they are repaid over long periods of time,
usually between 15-30 years. Mortgage repayments are usually
made up of two factors: ‘the principle’, which
is the amount you borrow, and ‘interest’, which
is the amount the lender charges you for using their money
and which may vary depending on the current market. The payments
made during the initial years of a mortgage consist primarily
of interest payments, and later payments will contain more
principle. Some payments may also include buildings insurance
as most lenders will not give you a mortgage unless they know
their investment will be protected.
Recommended Fixed Rate Mortgages Lenders:
There are a number of different products available on the
market today but mortgages generally fall into two categories:
Adjustable Rate Mortgages (ARMs) and Fixed Rate Mortgages.
A Fixed Rate mortgage is the most common type of mortgage
and is very popular with those that want the peace of mind
of fixed repayments, they are also much simpler to understand
compared to other types of mortgage. A Fixed Rate mortgage
charges a set rate of interest which is guaranteed to stay
the same throughout the life of the loan. As the interest
rate is fixed (stays the same) for the duration of the loan,
this means the monthly principle and interest payments never
change and so you pay the same amount every month. Because
the monthly payments are very stable, it allows a homeowner
to know exactly what the repayments will be during the length
of the loan and allows you to plan your budget more easily
knowing your repayments wont change. Also, because your interest
rate is fixed there is no need to worry about increasing mortgage
rates any time in the future.
The best time to buy a Fixed Rate mortgage is when interest
rates are low as this means you will be paying this low interest
rate for the life of the loan. However when interest rates
are high, qualifying for a Fixed Rate mortgage is more difficult
because the payments are more expensive.
Although many people choose Fixed Rate mortgages there is
a downside. We all know that in the open market, interest
rates can rise and fall dramatically. The main advantage to
a Fixed Rate mortgage is that the borrower is protected from
sudden and potentially significant increases to their monthly
payment, but although you have the peace of mind and protection
from interest rates rising, you also are not going to benefit
if rates go down.
Fixed Rate mortgages are usually available in 15 or 30 years
terms (although many lenders may offer other options). Thirty-year
loans are the most popular type as they offer the lowest monthly
payment of any fixed rate loans. However you also end up paying
the most total interest. Fifteen-year loans qualify for lower
interest rates and you will end up paying less total interest
(this is because your monthly payments contain a high amount
of principal payments as well as interest) but you will also
have higher monthly payments compared to a longer term. Yet
this does also mean that your loan will be paid off much quicker.
In general, Fixed Rate mortgages offer set rates, long term
low monthly payments and low risk.
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