Pros and Cons of Fixed Rate Mortgages
Obtaining any form of loan can be a great financial decision and can affect your future financial status.
The most common type of loan, in addition to personal loans, is that of the home mortgage loan. Due to the increasing expense of all services and items in contemporary society, it may be beneficial to obtain different types of loans; however, there are also various disadvantages to acquiring loans.
This article will provide information on the advantages and disadvantages of fixed rate home mortgage loans.
What Are The Advantages Of A Fixed Rate Mortgage Loan?
Consistency Of Repayment Amounts
A great benefit to fixed rate mortgage loans is the consistency of repayment amounts. This means that the repayment amount will be set at a specific cost and will be charged on a chosen date of each month. This ensures that the individual is able to provide the set amount of money and will be aware of future financial responsibilities regarding the loan.
An alternate loan to the fixed rate loan is that of adjustable or variable rate loans. There are benefits to this latter option; however, it is also very disadvantageous as the individual is unaware of the repayment amount required.
This inconsistency can cause a large amount of emotional distress due to the instability and confusion associated with the adjustable rates loan. A fixed rate home mortgage loan does not present with instability and thus reduces any emotional trauma that may be experienced.
What Are The Disadvantages Of A Fixed Rate Mortgage Loan?
May Be Difficult To Obtain, Depending On Your Financial Situation
One disadvantage to the fixed rate home mortgage loan is the difficulty to apply and obtain. In order to be approved for a fixed rate loan it is necessary for you to present with strong credit history and certain equity. The equity is essential in order to ensure repayment of the loan. This means that the bank or lender who offers the fixed rate loan will claim the asset or equity if you are unable to repay the loan.
Unlike adjustable mortgage loans, the fixed rate home mortgage loan is rather limited in scope. This means that the individual will have fewer options regarding the fixed rate and amount being borrowed. Of course, this can be considered a benefit as well as a disadvantage as the lessened choices does provide more comprehensive details of the loan.
A final disadvantage of the fixed rate home mortgage loan is the change in interest rates. As part of the fixed rate loan you will be required to agree to specific interest rates and, if the overall interest rates drop, it can lead to greater expense. The easiest method to overcome this difficulty is to refinance the loan and this can also result in additional expenditure.
As can be seen, there are various aspects to consider when obtaining any type of home mortgage loan. Using the information above you can determine whether or not the fixed rate home mortgage loan is suitable for your particular needs. Read on to the next article to learn about variable rate mortgages (also called adjustable rate mortgages).