Why A Fixed Rate Mortgage Should
Be A New Home Buyer's Best Option

When buying a home, a fixed rate mortgage is not only the traditional, but the most prudent choice. It features the reliability of a fixed rate of interest for the entire term of the loan. It's a comforting feeling for the homeowner knowing the monthly mortgage payment will remain constant unlike an adjustable rate mortgage or an interest-only mortgage.

The problems in the home mortgage industry today can be blamed on both home buyers that purchase homes more expensive than they can afford and overzealous mortgage lenders that entice buyers down a path of increasing mortgage payments that may exceed future ability to service the debt. This scenario has led to record-breaking foreclosures.

Advantages of Fixed Rate Mortgages.

1. Mortgage payments remain constant. There will be no interest rate adjustments during the term of the mortgage.

2. Term of Mortgage Options. Monthly mortgage payments can be set lower by opting for a longer term of 35 or even 40 years. However, the longer the term, the more interest that will be paid during the course of the loan versus a shorter term.

3. Forces the borrower into affordability. A mortgage lender will only approve a loan amount with monthly payments that the buyer can afford based on present income and credit rating. The home buyer will not be tempted to purchase a home beyond his or her present financial means.

4. If interest rates drop, the borrower has the option of refinancing with the existing lender or a different lender at the lower interest rates. However, make sure the mortgage company has not included a prepayment penalty clause in the loan contract which could prevent mortgage refinancing with a different lender in the future.

5. Every payment decreases principle. Unlike an interest-only mortgage, every payment reduces a portion of the principle balance. The amount of principle reduction enlarges progressively over the term of the loan.

6. If personal income grows in the future. The homeowner can choose to sell the existing home and purchase a larger more expensive home if and when personal income levels increase.

7. Peace of mind. By setting a fixed rate static monthly mortgage payment based upon today's income, the home buyer does not have to worry about an escalating monthly house payment

The Biggest Mistake.

It's human nature to desire a more expensive home than one can presently afford. Way too many home buyers opt for adjustable rate and interest only mortgages as a temporary way to keep house payments in proper ratio to present income. These types of mortgages sound great until the borrower is jolted in the future with dramatic increases in monthly mortgage payments that suddenly may not be affordable. Adjustable rate mortgage (ARMs) begin with a very low interest rate that will eventually be adjusted higher.

An interest only loan may create affordable payments today, but at a defined point in the near future when principle must be included, it is very possible that the borrower may not be able to service the enlarged monthly payment.

One of the biggest mistakes a home buyer can make is purchasing a home beyond his or her current financial means. Do not permit a mortgage lender or broker to talk you into an adjustable rate or interest only mortgage as a way to afford the payments today based upon an unknown expectation of an increase in personal income in the future. Stay within your present means, stay flexible and stay stress-free with a fixed rate mortgage.