Fixed Rate Mortgage
A fixed rate mortgage has a constant interest through out the lifetime of the
loan. Since the interest rate stays constant, so will your monthly payment.
However you will generally have to pay a higher interest rate on fixed rate
mortgages, because of the constant interest rate. Also, if you take
out a fixed rate mortgage during a period of high interest rates, then you
can be stuck with a costly mortgage.
For example if you took out a fixed rate 30 year mortgage for $200,000 with an interest rate of 9% then your monthly payment would be $1609.25. Regardless of the condition of the overall economy your interest rate, and your monthly payment will never go up. However it will also never go down, unless you are able to refinance.
Most fixed rate mortgages are not assumable, meaning they cannot be transferred from one
individual to another. Also prepayment penalties tend to be higher for fixed rate mortgages.
Many fixed rate mortgages also contain a due on sale clause which means that if you
sell the house, then you have to pay off the loan.
A fixed rate mortgage gives you the certainty that your monthly will not change. However, if
interest rates have declined, it might be more economical to refinance and get a lower
monthly payment.
Return from Fixed Rate Mortgage to Types of Home Loans
