Pros Explained The advantage of the fixed-rate mortgage is that the payment is the same each month. ... You don't have to worry about future higher payments as you do with an adjustable-rate mortgage. You pay off a little of the principal each month. That automatically increases your home equity.
Pros
Long-Term Mortgages
The main advantage of a fixed rate home loan is certainty. You can lock in or 'fix' your interest rate for a certain period of time – typically between one and five years – and plan for the future, knowing that your repayments will stay the same during that time.
If you're on a budget, knowing what your mortgage repayments are each month is a great help. Or if interest rates are low, it can be attractive to lock these in. ... However, If you are happy to be locked in for the agreed period, then a fixed-rate mortgage may be a good option.
A 15-year fixed mortgage is ideal for people who have the cash flow and want to pay off their home faster at less interest. Your monthly payments will be higher, though, because you're repaying more principal so run the numbers with your lender to ensure you can afford it without skimping on other financial goals.
You can still benefit, even if you're not willing to switch lender. While your own lender's fixed rates will likely have fallen, you might be able to do even better. ... And those with an LTV below 80 per cent are in an even better position to negotiate a good switcher rate with a lender,” he says.
The disadvantage of a fixed-rate mortgage is that the interest rate may be higher than either an adjustable-rate loan or interest-only loan. That makes it more expensive if interest rates remain the same or fall in the future.
The risk with fixed nominal rate contracts is that inflation may be lower than expected and the real value of payments correspondingly higher.
How Fixed-Rate Mortgages Work
Advantages And Disadvantages of a Fixed Rate
A fixed rate loan carries the advantage that the borrower will always know exactly how much of a payment is due each month. The disadvantage is that if interest rates rates drop significantly, the borrower still continues to pay the higher rate.
Fixed interest rate loans are loans in which the interest rate charged on the loan will remain fixed for that loan's entire term, no matter what market interest rates do. This will result in your payments being the same over the entire term.
Variable versus fixed rate loans
But if you have a fixed-rate loan now, you're not stuck with it forever. Once the fixed term ends, you can roll it over to variable and make extra repayments.
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