FIXED RATE MORTGAGESPeople usually opt for a fixed rate loan for the security it offers. You know exactly what you will be paying monthly for the life of the loan. If interest rates fall, you can refinance at a lower rate. Lenders are offering loan programs based on fixed rates, such as lower down payments;that is five percent down or less. Adjustable rate loans generally require a larger down payment. The most common fixed rate loans are for terms of 15 or 30 years. If you can afford the shorter term, it is a good way to build equity fast and save tens of thousands of dollars over the lifetime of the loan. However, I can show you how it will be more savvy to go with the 30 year fixed and pay an extra payment each month above and beyond your established mortgage payment. Just be sure to indicate your extra payment is for principal paydown only, not interest. This way you could pay off your mortgage sooner than 15 years and save ten of thousands of dollars. You will also have the "safety net" of paying you lower established mortgage payment should things become tight one month.
Fixed rate mortgages make the most sense when interest rates a low and if you are planning to stay put for the next seven or more years. They offer safety to people on fixed incomes who might not be able to afford a rising housing bill. If you need to lock in your level and can afford the monthly payments, consider a fixed rate loan.
Lets say you are working for a large company and making a good salary. You are comfortable and the job security is good but not much chance of further advancement. In other words, you do not anticipate moving anywhere else in the forseeable future, you want to avoid the possibility of higher house payments down the road.
A fixed rate,long term mortgage makes sense in this situation. Although you are probably paying one or two percentage points more than an adjustable loan, you also have the security of a fixed payment each month. If interest rates drop three or more points,you can refinance at a lower rate.
Bryan VogtStrano & Associates, Realtors® - GMAC Real Estate
(618) 355-5824
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# posted by
Bryan Vogt @ 9:14 AM
