FIXED RATE MORTGAGES

A fixed-rate mortgage means a loan in which the interest rate can not change over the life of the loan. It has the advantage for both borrower and lender of predictability. It has the disadvantage, for both borrower and lender, that interest rates change over time. Depending upon the direction that rates change, one side or the other will be the loser.

If other things are equal, the interest rate on a fixed rate mortgage usually will be higher than the rate on an adjustable rate mortgage. The reason for that is that, in a fixed rate mortgage, the lender takes the risk that rates will go up and it will lose money. In an adjustable rate mortgage, the borrower takes the risk that rates will go up.

In deciding whether to take a fixed rate or an adjustable rate mortgage, you should think carefully about how long you plan to own the property and whether interest rates are likely to go up or go down. An adjustable rate mortgage may make sense to you, if you are quite sure that you will not hold the property for more than a few years. If you plan to keep the property for a long time, a fixed rate mortgage is usually more prudent. No one knows for certain which direction mortgage rates are going to go at any given time. You can get some indication, however, of their probable movement by looking at how current rates compare to historical interest rates. If current rates are historically low, it is prudent to lock in those rates by taking a fixed mortgage.

Share