A fixed mortgage rate is advantageous to a homeowner because the rate of interest for the home loan taken will not vary throughout the loan period. If interest rates fall significantly the homeowner can choose to refinance their loan. If interest rates rise their low rate is locked in for the duration of the loan.
It is a fact that most people prefer an interest rate that doesn't change through out the entire loan period. It is also true that fixed rates are initially higher than adjustable rates. But whatever the market is subjected to, those fluctuations will not affect your fixed rate.
As inflation tends to drive up wages and asset prices the cost of the fixed monthly payment goes down in relative terms even if the nominal number does not change.
There are different kinds of fixed loans depending upon the requirement of the homeowner and how much they can afford & are willing to pay. The vast majority of homeowners finance home purchases with a 30-year fixed rate. The reason most homeowners choose a 30-year term is it offers the lowest monthly payment.
Homes are typically the largest consumer lifetime purchase. Building equity faster is a great way to offset periods of poor savings or get ahead for retirement. Those who have relatively high incomes or who live in low-cost areas may choose to try to build equity and pay off their home loan quicker by choosing a shorter duration loan.
When interest rates are relatively low most consumers opt for the certainty of fixed-rate mortgages (FRMs). When interest rates are relatively high people are more inclined to opt for adjustable-rate mortgages which have a lower introductory rate.
Adjustable-rate mortgages (ARMs) offer an initial teaser rate which lasts for the first 3, 5 or 7 years & then resets annually based on broader financial market reference rate like the London Interbank Offered Rate (LIBOR) or the 11th district Cost of Funds Index (COFI).
Most homeowners across the United States tend to either move or refinance their home about once every 5 to 7 years. Those who are likely to move in a short period of time may want to opt for the lower adjustable-rate, whereas those who are certain of their job stability and want to settle down for life may want to lock in low loan rates on their home.
No matter which choice a homeowner makes, provided they keep up with payments & have a strong credit profile they can choose to refinance their loan at a later date if interest rates fall significantly.
For most people owning a house is a dream. They are ready to make any sacrifices to make this come true. Once they have made the decision to buy a house, they need to finance it. People generally prefer the lowest payment possible, but have they really thought about taking a loan for a longer period of time or have they tried to calculate the total cost of their loan? What happens if they lose their job 20 years from today? If they get laid off in a couple years, do they have enough of a financial cushion to cover payments until they find another job? Financially, you have to make some adjustments before taking such loans. Some people go for short term loans because of the lower interest rates. But they are not aware of the threat of foreclosure if they can't keep up with the higher monthly loan payments.
Foreclosure is any homeowner's nightmare & can happen when they fail to save for emergencies. If a few loan payments are missed the bank which granted the loan can move to seize the property when the homeowners are either late or unable to pay off the loan.
The types of fixed loans available in the market are 10 year fixed rates as well as 15, 20 and 30 year fixed rates. Unlike ARM loans which can have widely swinging rates & monthly payments, there is no tension for the homeowner who uses a FRM because he knows exactly what amount constitutes the interest and also the principal payments. This is why it is best to go for a fixed 10 year. Fixed rates being predictable have led to their popularity. With adjustable loans you never know what is going to happen next.
Before choosing a 10 year loan, check your assets and see if you have enough income or other assets to save yourself from the threat of foreclosure. 10 year rates are typically the lowest of all fixed rate programs. You can save a huge amount of money which you would have paid for interests of other types of loans.
Just like a 10 year takes ten years to pay off, a 15 year would take 15 years, a 20 year fixed would take 20 years and a 30 year would take 30 years to finish off. Why opt for a 10 year fixed rate when you can choose the other types? After all, you have more time to pay the amount and complete the loan. With a ten year the main advantage is the cost. The interest rate is lower when compared to a 20 year or a 30 year note, and since you are paying off the loan far quicker interest has far less time to compound - yielding additional savings.
There are no hidden costs when you go for this type of loan. It also depends upon the organization from which you acquire your loan. Some organizations tend to ask fees for application forms and similar things. They may not mention it earlier because they want to make their costs look cheaper when compared to other organizations offering the same service. The best way to avoid this is by becoming shrewd, by reading all the fine print and checking if there are any loopholes. You will get a detailed idea of this when you go online and check the various companies and how they have maintained their rates. By checking interest rates of different companies through their websites, the possibility of hidden costs has dropped considerably. It is the duty of the customer to make sure that there are no additional costs dampening the benefits of the low interest rates.
Not all costs can be avoided, however. Closing costs can include an appraisal, an origination fee, title services, government recording fees & transfer taxes and other fees. Home buyers can also purchase points upfront to pay a lower interest rate for the duration of the loan. Buyers who put less than 20% down on the home are typically required to purchase property mortgage insurance (PMI) until they have at least 20% equity in the home.
In times of financial crisis, you can sleep well because at least your interest rates will not skyrocket. The fluctuations in the market which impact adjustable mortgage rate loans will not affect your interest rates. Knowing that your principal and interest rates never change will facilitate the homeowner to make an easier budget schedule. Go for a fixed rate, namely the ten year one if you want the security that it provides or if you are in a hurry to pay off your home. If you can afford it, you should definitely go for it.
There are so many websites that provide online quotes and advise you on the current rates. Since the rates vary regularly, it is better to check them regularly and go for the one that you can afford. Currently the interest rates have come down to historically low levels, encouraging homeowner's to choose various fixed rate options.
When compared to other options, the higher monthly payments might turn off some people. But if you can afford the monthly payments there are not many disadvantages to a ten year. If you are not able to pay off within the 10 year time period, you are stuck. If you are sure you can make it within ten years, then don't hesitate, just go for it. If you fear a turn for the worse in your financial condition within the next few years take the 20 year or even the 30 year loan, so you can be on the safe side. You could always choose to pay extra on a longer term loan to pay it off quicker.
Many people who have spare money lying around find uses for it. Opting for a shorter duration home loan is one way of forcing yourself to have the discipline to make the payments needed to quickly pay off the house.
There is no significant change in the interest rates when you compare a 10 year to a 15 year. But there is one more thing to remember when you choose a 10 year fixed rate: what happens when you take a 10 year note and are not able to pay for it? If the payment is close to maxing out your budget, to be on the safe side try to choose a 15 year and try to pay it off in 10 years by making extra payments. That way if you are not able to pay it off in 10 years you still have five years to finish off the payment. Such moves will put you in an advantageous position in cases of recession or job loss. When you approach a loan company, ask them to give amortization schedules for 10, 15, 20, 25 and 30 years. You can run any loan on this calculator & click the amortization button to create a printable amortization schedule of the monthly principal & interest payments. The loan companies allow you to pay off the loan amount earlier than usual. This works as a safety net for you in case you encounter problems.