Fixed Rate Mortgage Loans - Understand the Pros and Cons of the Fixed Rate Mortgage
Fixed Rate Mortgage Loans - Understand the Pros and Cons of the Fixed Rate Mortgage

There are many benefits and drawbacks to consider when deciding if a fixed rate mortgage is right for you. It is important to look at all options when it comes to something as important as getting a mortgage for your new home.

There are a few benefits to fixed rate mortgages. One benefit is that the rates and payments remain constant. There won’t be any surprises even if inflation surges out of control and mortgage rates head to 20%. This kind of stability makes budgeting easier. People can manage their money with more certainty because their housing expenses won’t change. Fixed rate mortgages are simple to understand making them appealing and good for first time buyers. Also longer term fixed rate mortgages are very affordable.

There are also a few drawbacks to fixed rate mortgages. To take advantage of falling rates, mortgage holders would have to refinance. That can mean a few thousand dollars in closing costs, another trip to the title company’s office and several hours spent digging up tax forms, bank statements etc. Fixed rate mortgages can be too expensive for some borrowers, especially in high rate environments, because there is no early on payment and rate break like there is with adjustable rate mortgages. Fixed rate mortgages are practically identical from lender to lender. While lenders keep many adjustable rate mortgages on their books, most financial institutions sell their fixed rate mortgages.

There are a few other important questions you should make sure you have answers to when deciding which type of mortgage is better for you. How long do you plan on staying in the home? How frequently does the adjustable rate mortgage adjust, and when is the adjustment made? What’s the interest rate environment like? Could you still afford your monthly payment if interest rates rise significantly? Do you know the main pros and cons for each type of loan?

Generally, fixed-rate mortgages are a safer way for first time home buyers to get a mortgage. There is greater stability and less risk involved. It is easy to budget and regulate your expenses when you know exactly what your interest rate will be.

About the Author

Carrie Reeder is the owner of ABC Loan Guide. It is an informational loan website, with informative articles and the latest finance news.
- posted by Mark Pane @ 3:48 PM 0 comments

 
What is a high cost mortgage loan?
The term "predatory lending" encompasses a variety of practices. Oftentimes homeowners in certain communities – particularly, the elderly and minorities – are targeted with offers of high-cost, home-secured credit. The loans carry high up-front fees and may be based on the homeowners’ equity in their homes, not their ability to make the scheduled payments. When homeowners have a problem repaying the debt, they are often encouraged to refinance the loan. Frequently this leads to another high-fee loan that provides little or no economic benefit to the borrower.

The Home Ownership and Equity Protection Act (HOEPA) as implemented by Federal Reserve Regulation Z – Section 32 – imposes additional disclosure requirements on these types of loans and prohibits certain acts and practices in connection with mortgage lending. HOEPA prohibits extending credit with out regard to a consumer’s repayment ability. HOEPA identifies a high-cost mortgage loan through rate and fee triggers, and it provides consumers entering into these transactions with special protections. HOEPA applies to closed-end home-equity loans (excluding home-purchase loans) bearing rates or fees above a specified percentage or amount. A loan is covered by HOEPA if (1) the Annual Percentage Rate (APR) exceeds the rate for Treasury securities with a comparable maturity by more than 10 percentage points, or (2) the points and fees paid by the consumer exceed the greater of 8 percent of the loan amount or $480 (for 2002, adjusted annually based on the Consumer Price Index). HOEPA restricts certain loan terms for high-cost loans because they are associated with abusive lending practices. These terms include short-term balloon notes, prepayment penalties, non-amortizing payment schedules, and higher interest rates upon default.
- posted by Mark Pane @ 11:42 AM 0 comments