In times of uncertainty and constant interest fluctuations, opting for a fixed rate mortgage might seem like the safest way to go. Even though such a point of view holds some good points, fixed rate mortgages are far from perfect and they do come with their fair share of negative aspects that could discourage even the most determined borrower.

A fixed rate mortgage is a type of loan, normally used in the acquisition of a home, which offers fixed interest rates to borrowers. Fundamentally, this ensures borrowers will boast a fixed, unchanged interest rate through the duration of the loan.

Advantages

• Borrowers opting for a fixed rate mortgage can benefit from a series of advantages, namely the stability offered by knowing that monthly repayments won’t suffer a sudden increase on account of rising interest rates. This positive aspect has driven many borrowers to prefer fixed rate mortgages over flexible rate mortgages.
• Younger borrowers can rest assured that their monthly payments won’t rise unexpectedly leaving them in financial turmoil. Lenders can even offer beneficial conditions during the first few years to facilitate financial strain.
• Budgeting is essentially easier with fixed rate mortgages since the price of monthly repayments will never change. Knowing exactly what and how much has to be paid at the end of each month is extremely important.

Disadvantages

• Fixed rate mortgages are normally more expensive than variable rate mortgages thanks largely to the increased risks supported by the lender.
• If interest rates fall the borrower doesn’t benefit and the mortgage payments will maintain unaffected. Financial market fluctuations do not affect interest rates no matter what.
• In the first years nearly all of the funds paid will go towards repaying the interest whilst the capital will maintain untouched. It is during the last years that little interest is paid and the larger portion will go towards repaying the capital owed.
• One of the worst parts about fixed rate mortgages are the outrageous fees that come jointly with the loan. Certainly, rates and fees can vary considerably from one entity to another but the truth is that they are still there and in most cases prices can reach the thousands of dollars.
• Long term loans have higher interest rates than that of shorter loans. As a result borrowers might find it preferable to choose other alternatives more affordable in the long run.

• Pros and cons of flexible rate mortgages