What Are The Advantages and Disadvantages of Fixed Rate Mortgages?

How Long Will You Be Staying in Your Home?

If you are purchasing a home and planning on staying in the home for a long time, you may want to consider a fixed rate home mortgage. Another benefit to this type of loan is that your payments will tend to stay the same over the life of your loan. This type of mortgage is best for those who are planning to stay in their home for a minimum of 3 to 5 years.

Australian lenders offer a variety of terms when it comes to fixed rate loans. The terms can range from one to seven, ten or even fifteen years.

The interest rate on a fixed loan remains the same over the lifetime of the loan. Payments will not fluctuate because of changes in the market. Your loan payments will be completely understandable and will be the same, depending on your loan terms. The most common loans are a 3 or a 5 year fixed rate loan. The 3 year loan offers lower interest rates and lower monthly payments. With the 5 year fixed rate loan, the interest rates will be slightly higher.

What Advantages Does a Fixed Rate Mortgage Offer?

Fixed payments are the primary advantage to fixed rate mortgages. The payment schedule is straight forward and you know exactly what you will be paying each month. This loan is the best option if you purchase a home when interest rates are low. This will allow you to lock in an affordable interest rate.

What Are the Disadvantages of a Fixed Rate Mortgage?

The disadvantages to this type of loan are minimal. However, you could get locked into a higher interest rate when it is compared to variable interest rate home mortgages. You will be committed to the interest rate, even if the interest rates decrease.

As you can see, there are many things to consider when deciding between a fixed rate mortgage and a variable rate mortgage. Determine how long you plan on staying in the home, any prepayment penalties and the interest rate to help you determine the best type of mortgage for your unique situation.

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