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What is a fixed rate mortgage? Why Not an ARM?
A fixed rate mortgage is a mortgage where the interest rate remains the same for the life of the mortgage. Current rates for fixed rate mortgages are at 50 year lows. The fixed loan rate is available on mortgages of varying length, the shorter the term, the lower the rate. 30 year fixed rate mortgages were the standard type of mortgages with which most people purchased their homes until the early 80’s when interest rates soared briefly to more than 20% and home construction nearly came to a complete halt. Changes in banking statutes in 1982 saw the introduction of the adjustable rate mortgage (ARM) a much maligned mortgage product because of its contribution to the housing collapse that began in 2007.
Which is better, a fixed rate or something else such as an ARM? The answer to that depends upon your finances and your situation. The fixed rate mortgage rates are extremely low at the moment, in fact, the lowest since national data has been collected. With a fixed rate mortgage your interest rate never changes and the mortgage portion of your payment will never go up, though your payment may increase if you escrow taxes, insurance and pay PMI (private mortgage insurance.) With the first signs of a recovery and the prediction that mortgage interest rates will soon be on the rise an ARM may not be a sound financial decision. A fixed rate mortgage with current low rates will remain a wise decision long after an improving economy has spurred an increase in mortgage rates in general.
If you are ready to buy your next home or if it’s your first one, the first stop should be a mortgage lender. Whether online or from a local bank, credit union or mortgage lender make sure you understand what you are getting into. Just like when you were in school, the only dumb question is the one you don’t ask! If you don’t understand something find out, do your homework and educate yourself. Too many people fell victim to mortgage brokers more interested in their commissions than the mortgagee’s financial security and we have all been living through the result of that.
Fixed rate mortgage interest rates have begun to show variations even within the same marketplace. If you are looking for a fixed rate mortgage shop around, look for the lender who not only offers you the best rate, but gives you the information you need to make the best decision.
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