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Benefits and Drawbacks of Fixed Rate Mortgages

01/05/2011

There are many different mortgage loan types available, but one of the most common is the fixed rate mortgage.  This mortgage type features a 15 or 30 year term length with a fixed mortgage rate that never adjusts upward or downward during the life of the loan.  There are benefits and drawbacks to this type of loan.

Benefits

The benefits of the fixed rate mortgage outweigh the downsides, which makes this loan type attractive to many home buyers.  We’ve listed the most important advantages here.

• Your rate never increases.  You know what your rate will be for the entire length of the loan.  You can make long term financial plans around your mortgage.
• From an investment standpoint, you’ll save money if market rates increase.
• The fixed rate mortgage is a standard loan option, which makes it simple to compare mortgage rates between multiple lenders.

Drawbacks

There are a few drawbacks to the fixed rate mortgage loan type.

• You’ll pay extra for a fixed rate mortgage.
• You won’t get the low rate offered with adjustable mortgages.
• You may lose money if market rates go down someday.

When weighing these benefits and drawbacks, it’s apparent that the fixed rate mortgage provides many benefits to clients wishing to fund a home purchase.  If you aren’t able to qualify due to your credit score or other issues, consider an alternative mortgage program.  But otherwise, the fixed rate mortgage is one of the best mortgage types available today.

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