If you need assistance, please call 928-302-6177

Fixed-Rate Mortgage Pros and Cons

Sunday, August 6, 2023   /   by Steve Ticknor

Fixed-Rate Mortgage Pros and Cons

In this blog, we've discussed FHA loans and conventional loans. We've also talked about adjustable-rate loans. So it made sense for us to tell you about the pros and cons of a fixed-rate mortgage as well.

At first glance, a fixed-rate mortgage sounds like the obvious choice over an adjustable-rate mortgage. But it does come with both pros AND cons. Learn what they are before you choose which option to go with when you buy a Lake Havasu home.

Fixed-Rate Mortgage Pros and Cons

What is a Fixed-Rate Mortgage?

The best place to start is probably to explain what exactly a fixed-rate mortgage entails. Well, as the name implies, the mortgage rate remains the same throughout the entire life of the loan. If you paid any kind of attention to the real estate market over the past few years, you saw mortgage rates go up and come down and then go back up again. In November 1981, mortgage rates for 30-year fixed-rate loans hit their apex at 18.39% over the last 50+ years. After the bubble burst in 2008, rates began to plummet. By the end of 2020, they hit their lowest point of 2.67%. Currently, we see them settling in at just under 7%, according to Freddie Mac. Someone who locked in their rate at 2.67 in December 2020 pays a lot less in interest than someone taking out a mortgage at 6.9% today.

Fixed-Rate Pros

One of the biggest positive aspects of a fixed-rate loan is that your rate never changes. Yes, things like property taxes and insurance may alter your monthly payment from year-to-year. But the actual mortgage payment (principal plus interest) never wavers. That may help make budgeting for your mortgage a little easier. Also, they come with no pre-payment penalty. If you plan on living in your Havasu home for a while, a fixed rate works out better in the long run due to how it is structured.

Fixed-Rate Cons

While the pros are great, you also need to weigh the cons. For example, fixed-rate mortgage loans tend to come at a higher rate than an adjustable-rate mortgage (ARM). At least, this is the case in the beginning. Over time, that ARM may outpace the fixed-rate loan. However, that may take several years to happen. Since the rate tends to be higher, you need to qualify for that higher payment. Typically, that means a higher down payment, more income, a higher credit score, a lower debt-to-income ratio, or any combination of these. That might make it more difficult for a home buyer. If you only plan on living in your home for a couple of years, it might make more sense to go with an adjustable-rate mortgage.

Before you decide whether to go with an adjustable-rate mortgage or a fixed-rate loan, talk to your lender. Ask them any questions you can think of about both types of mortgage loans. Then, once you have all the information, you can decide which option works best for your situation. After that, contact us to help you find your next Lake Havasu home.

Sunstone Real Estate Group at Coldwell Banker Realty, Lake Havasu City, AZ

  lake havasu real estate, home mortgage info

Coldwell Banker Realty
Steve Ticknor And Bob Ulery
2148 McCulloch Blvd N #105
Lake Havasu City, 86403

Copyright 2024 WARDEX Multiple Listing Service. All rights reserved. IDX information is provided exclusively for consumers' personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. All information is deemed reliable, but not guaranteed. This data is provided by the Western Arizona REALTOR Data Exchange, Inc.
IDX information is provided exclusively for consumers’ personal and non-commercial use. It may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. The data is deemed reliable but is not guaranteed accurate by the MLS.
This site powered by CINC: www.cincpro.com