When you decide to apply for a mortgage and have options to choose from, you might face the choice of a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Which do you want? Is one better than the other? Many people prefer fixed-rate mortgages, and here are three essential benefits to understand.
1. Fixed Rates Provide a Mortgage That Always Stays the Same
One of the primary reasons people choose fixed-rate mortgages is the certainty they offer. A mortgage that offers a fixed rate is one that provides you with the same interest rate for the lifetime of the loan. The rate does not change, even if the loan is for 30 years. You will always have the same mortgage payment amount during the 30 years. Having a mortgage payment that never changes gives people a sense of security. It eliminates the confusion and potential for change. If you like certainty and knowing what to expect, choose a mortgage that offers a fixed rate.
2. Fixed Rates Eliminate Risk of Rising Interest Rates
Two, fixed-rate mortgages eliminate the risk of increased payments due to rising interest rates. If you choose the opposite of a fixed rate, you will get an ARM. An ARM has an interest rate that will likely change after a specific timeframe. The timeframe might be five years or longer, but the loan rate could potentially change at that time. If rates in the economy increase, you could lose the low-interest rate you are paying right now. Your rate may increase by a lot, and if this happens, your payments will go up. You can eliminate these risks through a fixed-rate loan.
3. You Can Always Refinance
The other thing to understand is that you always have the option of refinancing your loan. If the interest rates in the economy drop, you might feel like you are missing out if you are stuck with a fixed rate. The good news is that you can refinance a home loan whenever you want. If rates significantly decrease, you can apply for a new loan. The new loan replaces your current one, which means you could take advantage of the low rates by going through the refinancing process.
Do you want to learn more about fixed-rate mortgages and other options? You can learn about the current interest rates they offer and much more by contacting a loan officer of your choice. Reach out to a company such as Sharefax Credit Union to learn more.