Mortgages: Fixed-rate mortgages
Fixed-rate mortgages are common mortgages for homebuyers because the monthly payments are stable. The interest rate at which you take out the mortgage will be the same interest rate you pay for the life of the loan, regardless of the lifespan of the loan.
It is important to understand mortgages and what they offer, their advantages and disadvantages and ultimately, which mortgage suits your lifestyle best. If interest rates increase, your mortgage and your mortgage payment won’t be affected significantly. Your basic loan payment will stay the same, even if your taxes or insurance costs go up. If you plan to own your home for five years or more, the fixed-rate mortgage is a good option.
Fixed-rate mortgages are popular with first-time buyers, because you know exactly what your monthly payment will be, regardless of what current interest rates are. It makes it easier to draw up a budget and there are fewer risks involved.
The only downside to fixed-rate mortgages is that even when interest rates drop, your mortgage interest will not go down and the interest rate is generally higher than other types of mortgage loans, making it harder to qualify for as large a loan with a fixed-rate mortgage.
If you choose an interest-only option for a fixed-rate mortgage, the term of the loan is divided into two periods. During the first period your monthly payment is lower because you only pay interest and no principal and during the second period you pay both.
It is important to speak to a financial advisor before applying for a particular type of mortgage. You have to know your financial capabilities and take out a mortgage that suits you and your lifestyle.
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