Title:
Fixed Rate
Mortgages: The Ups and Downs
Word Count:
945
Summary:
This article
gives you overview, information and benefits of fixed rate mortgages.
Keywords:
fixed rate
mortgage, mortgage, online mortgage, mortgage remortgages, mortgage lead
Article Body:
As the title of
this article would suggest, I am going to take you on a journey through the ups
and downs on fixed rate mortgages. When
buying a house, especially the first one, I think that it is literally the most
terrifying experience that I have been through, and I have combat experience as
a military veteran. For those of you who
find yourselves still anticipating the purchase of your first home, let me give
you a brief rundown of what it is and what it isn’t. What it isn’t will be the easies to tell you
about. It isn’t like going to the store
and buying what you want by swiping your card.
It isn’t even like buying a new car, although the new car buying
experience is a little bit closer. It is
like looking at dozens of houses that you hate in order to find one that you
like, only to learn that it is $10,000 more than you wanted to spend. So you make an offer and wait to see if the
seller takes the offer or sends back a counter-offer. Once the game of offer/counter-offer is
through you set up a closing date. At
the closing you sit down and sign enough papers to make Leo Tolstoy quake in
his boots. Once that hour devouring
procedure is done, the house is yours and you are in debt for 30 years. Sounds appealing doesn’t it? Well, actually, it really is. But, before you get to the point where you
can sign all those papers, you have to decide on what kind of loan will be best
for you. There are a couple of different
options and, in this first installment, I will discuss the fixed rate
mortgage.
Overview of a Fixed Rate Mortgage
As the name would suggest, the fixed
rate mortgage is a loan that has constant payments. By constant I don’t mean that they will be
due every month (although they will), rather I refer to the fact that they do
not change. If you get a fixed rate
mortgage and the payments are $900 per month, they will remain at $900 for the
duration of your loan. Nothing changes,
it is set in stone, and you can set your clock by it, $900 a month for 30
years.
Benefits of a Fixed Rate Mortgage.
There are a number of benefits to
having a fixed rate mortgage. I would
like to discuss two of them, the planning power that it gives, and the
financial liberty that you can take from it.
Let’s start with the planning power.
Planning Power
To take on the responsibility of a $150,000, $200,000, or even $1million dollar
debt is, as a mentioned before, very scary.
But, to know that all you will ever be required to pay is $900 a month
(or whatever your payments end up being.
I don’t in any way want to insinuate that all mortgage payments are
going to be $900 if you get a fixed rate.) is a very comforting piece of
knowledge. You can plan your budget
around that amount and make sure that you can always afford it. It really helps things out to have that
amount set in stone. The next thing that
most people get out of a fixed rate mortgage is financial liberty.
Financial Liberty
What I mean by that would be best communicated in the description of a
hypothetical scenario. Picture a young
couple, just out of college, just married, and brand new at the jobs in their
respective careers. They decide to take
out a loan and buy a house. They,
because of the salary restrictions that they are working with, can only
comfortably afford $500 a month. They
know that this won’t get them the house that really want so they decide to
stretch a lot financially and get a house that will run them $800 a month. After two years they both get promotions and
their bills get easier to pay. After
another two years they both move into management and get more promotions. Suddenly they find themselves in a position
where they can actually comfortable afford to make $900 a month payments, and
later on they can make $1000 a month payments, but they don’t have to. All they are required to do is $800. Every amount of money that they pay over $800
in a month goes towards paying off the principle and this gets their house paid
off much faster. When the house is paid
off, there is $800 a month that is no longer being tied up in living
expenses. You see, in a fixed rate,
30-year mortgage, it will take 22 years to pay half of the principle because so
much of that money is going towards the interest. If you consistently pay more each month than
the minimum payment you can pay off a 30-year mortgage in 20 years
easily.
Final Synopsis
For the young, first time homebuyer with a solid income, a fixed rate mortgage
is a pretty good option. It allows, as
was earlier stated, predictability and the possibility for earlier financial
liberation. For the older first time
homebuyer this is the best option. The
ability to pay off a mortgage in less than 30 years is something that becomes
very important as retirement approaches.
For the buyers that are on a much tighter, less predictable budget, this
may not be the best option. In that case
there are other mortgages that would be better suited for their needs. But, as with all mortgage and real estate
decision, sit down with a professional who can assess your individual needs and
come up with a plan that is right for you.