Advantages and Disadvantages of a Fixed Rate Mortgage

When shopping for a fixed rate mortgage, you must consider all of the advantages and disadvantages in order to decide whether it's the right product for you. In some cases, a fixed rate mortgage is a good call, especially if you're looking for stability, but not always.

Advantage: You Always Know What You're Going to Pay
A fixed rate mortgage stays the same for the life of the mortgage; possibly 15 but typically 30 years. This can be a major advantage over adjustable rate mortgages, graduated mortgages and buydowns. While your property taxes and insurance may go up, depending on your locale, your monthly mortgage payment for the loan itself stays the same for the life of the loan.

This is especially advantageous if you're lucky enough to get a fixed rate mortgage at a very low interest rate. With a fixed rate mortgage, you never have to worry about whether you can afford to pay more when interest rates go up, or when your graduated mortgage or buydown increases. If you're on a low or fixed income, a fixed rate mortgage is probably the best choice; you won't face skyrocketing interest rates and mortgage payments that could cause you to lose your house.

Disadvantage: The Inability to Take Advantage of Low Interest Rates
While the fixed nature of a fixed rate mortgage is its biggest advantage, it can also be its biggest disadvantage. If you're unlucky enough to get a fixed rate mortgage at a high interest rate, you could be paying thousands of dollars more over the life of the mortgage than if you had an adjustable rate mortgage. While you might be able to refinance to take advantage of a lower fixed rate mortgage, sometimes circumstances don't permit it, such as if your credit report has declined, if you or your spouse becomes unemployed or if your income and expenses change such that you can't qualify for a new mortgage.

Disadvantage: Losing Money If You Plan to Move Soon
If you're buying a starter home and plan to upgrade, or if you're buying only to build up some equity but plan to move in a few years, a fixed rate mortgage could actually cost you money over an adjustable rate or graduated mortgage. Fixed rate mortgages are most useful when you're planning to stay in a house for the life of the loan, and they can actually be detrimental if you're moving soon. Adjustable rate and graduated mortgages typically start out with a lower monthly payment than a fixed rate mortgage, so if you're planning to move before the monthly payment increases too high, you could save money by not having a fixed rate mortgage.

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