Fixed Home Loans (Fixed Interest Mortgage)
Author: admin | Category: Fixed Home Loans, first time home mortgage
With fixed home loans your interest rate and therefore your mortgage repayment stay the same for as long as you have the mortgage. This is the most straightforward type of mortgage you could have.
You know, right at the start, what you will be paying every month. All you have to do is set up an automatic payment from your bank account, make sure you have enough in the account each month, and … that’s it!
This makes it so much easier for you to save up for things like home repairs and vacations.
You do need to be aware that the interest rate will be higher than with other types of mortgages. So, to start with, your payments will be higher than they would be if you had a different type of mortgage.
The main disadvantage of fixed home loans is that you could be left paying much more than you need to, because you took out your mortgage when interest rates were particularly high. Your lender will be extremely happy with the situation, but you won’t have to settle for that. Here’s how:
1) Bring down the loan
Make sure the mortgage you take gives you the option to pay off some of the principal early. Without any penalties. This way you will reduce the total amount you have to pay back, and/ or your monthly payments.
2) Choose a designer fixed interest mortgage
Different types of fixed home loans have been developed so that you can keep the supreme advantage of stability and get the best element of adjustable rate mortgages – benefiting when interest rates drop. Here are some of them:
Two-Step Mortgage
As the name implies, this is actually two fixed home loans stuck together. You get a fixed interest mortgage for 5, 6, or 7 years. It then changes into a second fixed interest mortgage for the rest of the 25 or 30 years. Each mortgage is based on the interest rates at the time.
So if interest rates in general are at an all time low when you first take out your mortgage, this is not the right option for you. Because it’s unlikely that the rate you get in 5, 6, or 7 years’ time will be better than what you have now.
Convertible Mortgage With Mortgage Rate Reduction
This mortgage rate reduction option allows you to adjust your fixed interest mortgage to the going market rate. This is ideal if rates drop significantly, after you’ve had your mortgage a while.
Mortgage With Balloon
A first time home mortgage with balloon payment is fixed for a short while. Anything between 2 and 7 years. Then you have to pay off everything that is left, all in one go. That’s the ‘balloon’ part.
At that point, unless you’ve won the lottery or got some hefty investments maturing, you will then need to get an entirely new mortgage. This new mortgage will be based on whatever the interest rate is, at the time.
This would be very good if interest rates had dropped a lot by the time you came to re mortgage.
The mortgage with balloon is attractive because it comes with lower interest rates than a standard 15, 20, or 30 year fixed interest mortgage.
The big worry with this is: Will you be able to get a loan for the amount you need (to clear that mortgage balance) at that time? Your credit status could have weakened, interest rates could have soared, your income could have stagnated, dropped or just not risen enough.
You can get the option to refinance bolted unto your mortgage with balloon. This essentially makes the mortgage feel like a two step mortgage. Once the first pre-balloon period is over, these mortgages can be converted into standard fixed home loans.
If you take the option to refinance, you’ll probably be saved the trouble of re-qualifying, which will take away the worries we mentioned earlier. Also with this option, you probably won’t need to have your home re-approved.
Naturally, there will be conditions and there could be a fee.
You have the power
As you can see, with this type of mortgage you can build your future on very stable grounding. And you’re not restricted to a deeply conservative and inflexible model. You can customize fixed home loans and make them really work for you.
Tags: 1st home mortgage, first time home mortgage, Fixed Home Loans, Fixed Interest Mortgage
