What are the cons of a Fixed Rate Mortgage?
Answer:
One of the biggest disadvantages of a fixed rate mortgage is that it can be difficult to qualify for
these types of loans. For many people, the income and credit qualification requirements for conventional fixed rate mortgages is a significant drawback. In many cases, individuals who meet the credit and income criteria for a fixed rate loan do not have sufficient funding to meet the down payment requirement.

While there are some fixed rate loan programs that don't require large down payments, it can be difficult for prospective homeowners to afford the mandatory private mortgage insurance (PMI) required to be approved for these types of loans.

For individuals who are purchasing a home with the intent of living in the home a very short period of time, the interest rates of fixed rate mortgages may be a drawback. In many cases, those who don't intend to live in a house for several years will opt for an adjustable rate mortgage, to take advantage of lower interest rates and monthly payments during the initial months of the loan period.

  more Q&A sessions like this

Trackback(0)
Comments (1)add comment
written by mmassullo , June 10, 2008

The "pros" so outway the "cons" of a Fixed Rate Mortgage for many reasons:

1. Don't forget that your monthly housing expense also includes property taxes and insurance. While you have very little to no control over taxes and insurance, if you have a fixed rate mortgage you control the largest portion of your house payment and can count on it to never change throughout the life of the loan.

2. Until recently, you could get a conventional fixed rate loan with zero money down. While lending guidelines have changed, you can still get a fixed rate purchase loan with only 3% down.

3. In regard to private mortgage insurance (PMI), this insurance is mandatory on a conventional loan whether it's a fixed rate loan or an adjustable rate loan. There are also alternatives to PMI by utilizing a "split loan" or a "lender paid mortgage insurance".

3. No one has a crystal ball. An adjustable rate mortgage may sound appealing to a homeowner who "thinks" that they may be in their home for a short period of time. However, life can take you on paths different than you may anticipate today and if you're in an adjustable rate mortgage and you've now reached your adjustment period, it upsets your budgeting and can lead to a costly refinance.

4. An adjustable interest rate is usually not that much lower than a fixed interest rate. The peace of mind that a fixed interest rate gives you is well worth the small additional payment you would make, and could save you thousands of dollars in a refinance should you get into your adjustment period.

Bottom line. . .it's better to not speculate when it comes to your mortgage. Adjustable rate mortgages just don't offer enough benefit to outway the risks.


Write comment
You must be logged in to post a comment. Join for free or Login.

busy
 
Credit Card Debt Student Loans New Home Purchase Mortgage Refinance Mortgage Home Equity Loan Debt Consolidation Loan Loan Quotes