change regularly causing those people who would rather not gamble on the fluctuating rates to choose fixed rate home loans. Everyone thinks having an easy to balance budget is more straightforward than a continually changing influx or output of money. Being able to say you make the same amount each month and that your bills will be exactly the same as time passes can have its appeal. This desire to have stability within a budget is why most people choose a fixed rate mortgage. However, what they don’t realize is that even house bills that have fixed rates can fluctuate over time. This article will discuss what a fix rate mortgage is, why most people choose it, and what can cause a home loan with a fixed rate to have changing payment amounts.
Fixed Rate Mortgages Simplified.
A fixed rate home loan is a mortgage whose interest rate is locked in the day that the borrower signs. There are a few benefits and disadvantages to this type of loan.
- Fixed rate mortgages have a more consistent house payment each month.
- The rate that you signed for is the rate that you will have regardless of rate increases.
- Typically, fixed-rate mortgages offer better long-term interest rates.
Fixed rate mortgages have the interest rate that you signed for even if home loan rates fall. This could mean that you have to pay a higher interest rate in a few years than people getting new mortgages are paying.
Fixed Rate Mortgages, the Popular Choice
People often want to know what is coming and plan a little. By choosing a fixed rate mortgage, you have a start to finish map of your mortgage. You see the amount you are borrowing and how much your interest rate is. This means that you can figure out now, how much the loan will cost you in the long run. If you have an adjustable rate home loan (a mortgage whose rate is not fixed) you can typically estimate what your introductory period (a period usually lasting 3 to 5 years where your mortgage rate stays at a lower consistent rate) will cost you, but after that period ends you cannot predict what kind of monthly payments you might be facing. Regardless of the potential to sign away their chance at a lower rate, most people opt for the fixed rate mortgage because it makes them feel more secure with the stability that the steady cost provides.
Fixed Rate Mortgage and Changing House Payment Amounts
It is true that your house payment will stay more stable with a fixed rate mortgage than it would with an adjustable rate mortgage that is past its introductory period; however, that is still no guarantee that your house bill will stay the same amount from the 1st month to the 360th month (assuming that you have a 30 year mortgage). Some lenders require new borrowers or borrowers who did not put a substantial enough down payment up for their home, to have an escrow account. An Escrow account is like a forced savings account. When you pay your monthly house bill, if you have an , part of your payment will go toward the home loan, while another part is put into a special account. The money set into your escrow account is used to pay your property taxes twice a year and your annual homeowner's insurance policy.
Unfortunately, the amounts that you pay into your escrow accounts are only estimates of what your taxes and insurance will cost. The company who holds your escrow account will use your last year’s premium and tax bills to approximate what your next year's statements will amount to; however, sometimes there are overages or shortages, and both can affect your house payments.
This happens when your escrow company overestimates what you will need to pay for the next year, resulting in you paying too much into your escrow account. After the bills are paid, the escrow company will typically apply any overage toward what they expect next year’s bill to be. This will usually cause your house payment to decrease.
This happens when the escrow company underestimates the amount your taxes and insurance will cost. There is typically a buffer that you pay into your account that is used to cover the shortage; however, this translates to a higher house bill next year because you will have to replenish your buffer as well as deal with the new cost estimates based on the higher pricing.
NHL Lending and Your Fort Lauderdale Mortgage
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