The main reason why a fixed rate mortgage may be right for you is the fact you can sleep soundly for the length of the fixed rate period.
We are in a period of ups and downs in the world economy. At the moment we have low rates but how long this will last is anybody’s guess.
In the not too distant past we saw interest rates more than double. Homeowners on normal variable mortgages saw their payment rise and rise till they were paying more than twice as much per month.
I don’t know about you but that would put the fear of god into me. Facing more than double what I expected when I took the mortgage. Not only that but there’s also a good chance you couldn’t afford the payments and lose your home.
So how do we combat that scenario? This is where the fixed rate mortgage comes in. You agree on a fixed interest rate for a period of years. Your payments get fixed at this rate for the duration.
Doesn’t matter whether interest rates go sky high, you still pay the same. If you had a fixed rate mortgage and rates doubled, it wouldn’t matter one bit to you.
If rates go high your friends and relatives could be battling rising payments. Some of these people would be getting into serious arrears.
So, are there any other benefits to a fixed rate mortgage? Besides the security of it you usually get them at a slightly discounted rate. So in effect you get slightly cheaper borrowing.
It’s not all positive though, there are some pitfalls. If rates were to drop you have to stay on the fixed payment. Meaning you pay more than some other borrowers.
But, at the outset you were happy to take the fixed rate mortgage deal so it should be easier to take a drop in interest rates against a sharp rise in them.
Worst case scenario during a rate drop is some people paying less than you, however the opposite sees them risk losing their houses through potential repossession.
To conclude, in the face of the potential dangers I would still go with a fixed rate mortgage. The huge benefits outstrip the dangers of taking a fixed rate deal.
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