When buying a home, you will need to choose whether you want a fixed rate or adjustable rate mortgage.
There are scenarios where adjustable rate mortgages make sense, particularly for homebuyers who will only be in their homes for a few years.
But for many homebuyers, a fixed rate mortgage is an ideal choice. Following are a few reasons to think about purchasing your next home with a fixed rate loan.
1. Lock in today’s low interest rates.
Mortgage rates today are the lowest they have been in three years. As of August 2018, 4.55% was the interest rate for a 30-year, fixed rate mortgage. In August 2019, the rate for that type of loan dropped down to just 3.62%.
Will rates stay this low, or will they climb back up? With a fixed rate mortgage, you don’t have to worry about the answer to that question, because you can lock in today’s rate for the lifetime of your mortgage.
Years down the road when your neighbors might be paying more, you could still be paying that low rate of 3.62%.
2. Fixed rate mortgages are predictable.
Not only can you lock in a low rate with a fixed rate mortgage, but you also have the benefit of knowing in advance what you’ll pay over the lifetime of your loan.
Just having that financial predictability and stability in your life can be a major reason to choose a fixed rate mortgage all on its own.
3. It is easier to budget when your monthly mortgage payments are fixed.
When you have predictable monthly payments, maintaining your monthly budget can be less complicated.
If you do not know what you’ll need to pay each month over the years ahead, it can be more difficult to manage everyday expenses and ensure that you remain profitable with your financial life.
4. Planning for the future is simpler with predictable payments over the lifetime of a loan.
With an adjustable rate mortgage, not only can it be more challenging to manage everyday expenses, but it also can be difficult to plan for the long term.
For example, let’s say that you have two children when you purchase your house, and you decide on an adjustable rate mortgage.
Perhaps you assume that you will be moving in a number of years, but you end up staying in the home, and for one reason or another, you do not end up refinancing (perhaps you fail to qualify).
Would you be able to afford to send your kids to college when they graduate? It can be difficult to make a guess about that when you have no idea what you’ll be paying on your mortgage in the future.
An adjustable rate mortgage really is not intended as a long-term product the way that a fixed rate mortgage is. Hypothetically, this is a product aimed at consumers who will be in a house for just a few years. With current adjustable rate products fixed initially for 3, 5, 7, or even 10 years, borrowers can take advantage of lower rates while accepting the risk of where the rate will go when it starts to adjust.
Nonetheless, plenty of people found themselves with ballooning adjustable rate mortgages which put them underwater during the recession, and many of them had been living in their homes for quite a few years.
If you get a fixed rate mortgage, whatever uncertainties the future brings, the cost of your mortgage will not be among them.
You still may not fully be able to predict what will happen with factors such as your job, but at least a ballooning interest rate will not trap you in an underwater house or drain your kids’ college funds.
5. A fixed-rate mortgage can be a less stressful option if you worry about what you can afford.
Along with concrete financial benefits, for some, a fixed rate mortgage might offer psychological benefits as well.
If you are prone to worrying about money, you may find yourself feeling less anxious about a fixed rate loan than you would an adjustable rate loan, since you have less uncertainty on your mind.
Less stress is always a major plus, so you might take that into account as well when deciding whether to get a fixed rate mortgage.
Is a Fixed Rate Mortgage Right For You?
With interest rates low, this is the perfect time to lock in an affordable rate for the term of your mortgage. But you might still have some questions about fixed vs. adjustable rate mortgages and whether a fixed rate mortgage in Washington State is the right fit for you. To schedule a consultation to discuss your needs and options, please call us now at (206) 352-6453.