Tuesday, January 01, 2008

The Ups And Downs To Fixed Rate Mortgages.

By Chris Clare

For anyone wanting a mortgage nowadays finding the wood for the trees can be more than a daunting process with so many mortgage companies offering so many mortgage products. Factor in the fact that you just cannot tell the future make the whole job that little bit harder. It is for this reason that fixed rate mortgages exist. When you have a fixed rate mortgage you know just what you are going to be paying for a given period of time. There can be good points and some bad points to this type of mortgage loan within this page we will try to deal with some of them.

In times of uncertainty fixed rate mortgages tend to be the most popular type of mortgage loan. As the majority of loans for property are arranged on a 25 year basis having some sort of security over payment is considered quite beneficial. Having said that you do find mortgages exceeding 25 years, and some can be as low as only ten years.

A great up side to a fixed rate mortgage is the fact that the rate itself will stay the same and as such so will your mortgage payment. Because of this it does make budgeting on a monthly basis exceedingly easy for most people as they know exactly were they are with their payments each month.

The various fixed rates and their duration is set by thee lenders and of course market conditions. The longer the fixed rate is for the higher the rate will be and conversely the shorter the fixed rate the lower the rate generally is. As a result thorough research is always very much advised to ensure you get the best deal available to you.

Another valuable pro of a fixed rate mortgage is when you know or when interest rates are predicted to be on the rise. If you lock in your mortgage rate at a lower rate and then the interest rates increase, you are guaranteed the lower rate. Over time, a lower interest rate could save you a considerable amount of money on your home mortgage.

That said the flip side to this coin is also the case. If you get a fixed rate mortgage and rates end up falling you will be stuck with your higher rate and again over time this difference can cost you money. So you should note that having a good understanding of the market is vital if you do not want your mortgage costing you more than it needs to.

Regardless of the fact that fixed rates do vary from Mortgage Company to Mortgage Company it is considered a rule that three years or less the rate you will pay will usually be less than the lenders standard variable rate and over three years you should expect a bit more than the lenders standard variable rate. It is also a common fact that due to the fact that most mortgage companies borrow fixed rate money from the money markets they in turn charge an arrangement fee to you the borrower. As a consequence of this you will find that the more competitive the mortgage rate the higher the fee being charged.

A final bad point is what is known as early redemption penalties or ERPs. An ERP is a penalty charged to you if you redeem, that is, pay off the mortgage early or before the fixed rate is over. It is important to factor this into any decision to purchase a fixed rate because if you have plans for the future you do not want them impacting on any fixed rate you might arrange now. So be sure to decide exactly how long you want the rate for and be prepared to stick to it because failure to stick to it could cost you many thousands.

At first glance, it is may seem difficult to know which type of mortgage best suites your personal needs. However, with a little bit of research, it will be easy to determine what type of mortgage you truly need. A fixed rate mortgage has a variety of pros and cons. Therefore, when considering a fixed rate mortgage, be sure you have weighed the pros and cons in order to assure you are taking on a financial commitment that is right for you.

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