To say in simple words, Fixed Rate Mortgage is a type of mortgage where the payable rate of interest remains the same for the entire period of the loan. Many people prefer to opt for Fixed Rate Mortgages because they do not like the change in interest rate which takes place in Adjustable Rate Mortgages. They like to pay off their loan in a risk-free manner. Hence Fixed Mortgage is extremely popular. There are two fundamental types of Fixed Rate Mortgages- 30 Year Fixed Rate Mortgage and 15 Year Fixed Rate Mortgage.
In 30-Year Fixed Rate Mortgage, the term of the mortgage is of 30 years. This means that you can pay off your loan within 30 years of the date of borrowing the loan amount.
But, in a 15-Year Fixed Rate Mortgage, the period of the loan acquired is 15 years. Thus it is similar to the 30 year mortgage but only with a difference in the tenure of the loan repayment.
The main attraction behind long term mortgage with a fixed rate of interest is financial stability with smaller denomination of payments. 40-year and 50-year mortgages are also available in the market but they are very rarely opted for. The reason behind this is the borrower’s reluctance to be under the burden of a single debt for such a long period of time.
Fixed Mortgages are generally more expensive than Adjustable Mortgages. Thus Fixed Rate loans have a higher rate of interest as compared to Adjustable Rate Mortgages. This can be attributed to the high level of uncertainty associated with the interest rate of Adjustable Loans. But stability of Fixed Loans is what drives people towards it. Because, in case of adjustable mortgages, increase in the market rate of interest increases the interest rate of the mortgage as well thus leading to a rise in the monthly payments.
Also, with fixed rate loans, the probability of mortgage foreclosure is very less. This is because of the higher structural benefit offered by these loans. Thus the borrower has a greater control over his monthly budget. Also the chance of making smaller monthly payments at a lower rate of interest helps you reduce the usage of credit cards which charge a very high rate of interest.
In the recent past, the interest rates starting rising. This led to increasing monthly payments for people who opted for adjustable rate mortgage. Hence many of them shifted their refinance option to the fixed rate one to protect themselves from further changes in the rate of interest. This incident proved the importance and need of Fixed Rate Mortgages.
Thus, Fixed Rate is a very viable option of mortgage if you are looking for a peaceful manner in which to settle the loan. It frees you from the tension of variable interest rate. But, for these benefits, you have to settle for a relatively higher rate of interest. In the end, it is a personal choice.
