In today’s economy, a fixed rate mortgage is the best route for most people to go through. With the interest rates threatening to rise, locking in a low rate today could save you lots of money in the future. A fixed rate mortgage is usually a little higher than an adjustable rate mortgage. This is because the lender is forced to offer the same rate no mater what the prime rate may rise to in the future. In the 70’s and early 80’s, people with fixed rate mortgages were in a nice position as flexible rate mortgages climbed into the 20% rates.
There is an exception to the fixed rate rule, but it takes some serious discipline. If you can make yourself pay off the loan BEFORE the first interest rate hike then a flexible rate will work for you. You get a lower interest rate which means you pay less in finance charges. If paying off your mortgage early is your goal then you need to check with your lender to make sure there are no prepayment penalties. Some companies write in a clause to prevent you from paying off the loan early so they are sure to get all their finance charges.
What ever direction you choose to go with your mortgage, whether you get a fixed rate mortgage or a flexible rate mortgage, aim for the shortest term length you can manage. It will mean higher payments on the front end, but it will mean a great savings in the finance charges on the back end of the loan.
For the first time buyer or for those who have had financial difficulties in the past, a fixed rate mortgage could keep them from being pushed into future financial problems. Keep in mind that as times change, and interest rates fall, it is a good idea to examine your mortgage situation to see if a new route could be a better one.
Kathryn Lang is a freelance writer covering the finance industry. She has written various articles on fixed rate mortgage products and mortgage news in general.
