When to Choose a Fixed-Rate Mortgage
Fixed-rate mortgages are a safe, stable loan in which the interest rate never changes throughout the life of the loan. However, variable-rate loans continue to be the most popular loan type in the United States because of their very low introductory interest rates. Issues arise when the introductory period ends and the interest rates of variable-rate mortgages can skyrocket. The foreclosure crisis that caused the housing market crash in the US has been mainly attributed to these variable-rate mortgages.
In most cases, if you’re purchasing a primary home or a rental property a fixed-rate mortgage is the best loan to go with. Payments may be a little higher than variable-rate counterparts, but you are assured that those payments will remain the same for the next 20-30 years until the loan is paid off. For the most part, fixed-rate mortgages are the best option for long-term borrowing. Especially in times when the economy is down and the market is poor, fixed-rate mortgages should be seen as the best option as variable-rate interest can cause severe financial hardship.
If you’re looking to refinance a property, fixed-rate mortgages are generally preferable and easy to get in instances where a nice down payment is included. Many homeowners switch from variable-rate to fixed-rate mortgage loans before or shortly after the introductory period of their first loan is complete. If you’re planning to purchase a property and want to finance with a variable-rate loan first, make sure you know the policy for early payoff. Count in the cost for re-appraising the property and any other closing costs for the refinance to see if having a variable-rate mortgage to start will even save you any money. In many cases, these costs end up making it more expensive than if the buyer had just gone with a fixed-rate loan from the beginning.
