Residential loans which provide the same interest rate for a predetermined term are referred to as “fixed mortgages.” They are usually either 15 year mortgages or 30 year mortgages. The great advantage of a thirty-year mortgage as opposed to a fifteen-year mortgage is that you’ll have more money left over at the end of each month. However, the longer the mortgages, obviously the longer you will have to pay it back. With a longer mortgage term, you’ll be paying much more interest over the life of the loan.
Some fixed-rate mortgages only offer a fixed rate for just one year. These are typically offers designed to attract new customers who would otherwise have difficulty qualifying for a mortgage. Adjustable rate mortgages usually start out with a low interest rate, but these “teaser” rates usually don’t last for long. When the fixed interest rate has run its course, the rate goes on to fluctuate in correspondence with the housing market. Unfortunately this is not always a good thing! Naturally, one disadvantage of carrying a fixed mortgage is that you will decrease your odds of getting a lower interest rate in the event the housing market enters a slump. The holder of an adjustable rate mortgage has a payment rate that will be either high or low according to the housing market.
Knowing how much you’ll have to pay each month is the greatest advantage of having a fixed mortgage. This is great for anyone trying to adhere to a budget, or anyone else where a rise in your monthly mortgage payments would cause problems. If you’re not equipped to take a risk that your mortgage payments may increase at some point in time, an adjustable rate mortgage is probably not your best option. At least with a fixed mortgage you know exactly how much you need to pay every single month.