When it comes to mortgage loans, people, especially the first time loan buyers, get confused among the two options- fixed rate mortgage loan and adjustable rate mortgage loan. There are a number of concerns which are related to both these types and both have their own pros and cons depending on those concerns. Here in this article, we are going to discuss the pros and cons of fixed rate mortgage loans.
Majority of the mortgage buyers prefer the fixed rate mortgage loan due to the stability it provides. The borrower is not required to worry about the increasing interest rates, increased monthly repayments and more. Despite of these benefits, there are some factors that can make the fixed rate mortgage loans a bad choice. For an instance, buying a fixed rate mortgage loan for 10 years when the interest rates are on peak will really be a foolish idea. So, you are required to consider all these factors before making your choice for the type of mortgage.
Pros and cons of fixed rate mortgage loans
- In the FRM, you know the exact amount that you will be going to repay every month. It lets you manage your budget and plan for the future.
- FRM is going to benefit you in the case interest rates rise in the market.
- By extending a FRM over 30 years of period, you will be able to make a big purchase which otherwise you will not be able to make. And it will be more beneficial if you are buying the FRM when the rates are extremely low.
- FRM allows you to complete the repayments early, which in turn will decrease the interest charges for the remaining period.
- Refinancing is not free in the FRM as you need to pay for the closure of loan. And the terms of the loan will be reset after refinancing. Thus, if you want to take the advantage of lowered interest rates, then you would be required to constantly refinance and pay the closing costs.
- You will be paying a large amount as interest in the whole FRM tenure, in the case you don’t complete the repayments early. Over a period of 30 years, the interest will become more than the actual mortgage itself.
- FRM will not benefit you in the case interest rate falls in the market and is less than what you are paying.