Should I Refinance To A Fixed Rate Mortgage?

If you are considering refinancing your home loan, you may be faced with the decision to take an ARM ( adjustable rate mortgage), or a fixed rate. Your own personal situation, as well as what you expect from your refinanced mortgage will have a great bearing on whether you should choose a fixed rate mortgage, or look for another alternative.

What Is A Fixed Rate Mortgage?

A fixed rate mortgage is exactly what it sounds like - a home loan that has a set interest rate over the term of the loan. If you take a home loan refinance over 30 years, your interest rates will stay the same over the next 30 years, or until you refinance. Other fixed rate mortgages may only be for a set amount of years, such as 1-10 years and then they are set to adjustable rates.

How It Is Different From An ARM?

An adjustable rate mortgage has an interest rate that is subject to change depending on current markets and financial trends. Unlike a fixed rate mortgage, ARM loan monthly repayments are subject to change, if interest rates increase, so do monthly repayments.

Who Will Benefit From A Fixed Rate Mortgage?

A fixed rate mortgage offers borrowers stability. If you have a great credit rating, you will always be offered a reasonable interest rate. Many people with a long-term steady job who want to budget over the long run choose a fixed interest rate loan over taking the risk of an ARM loan, which is subject to change depending on current markets.

Pros And Cons Of A Fixed Rate Mortgage

The fixed rate mortgage is one of the safest types of loans available, and you know right from the start what you are paying since this figure never changes over the term of the loan. Some of the problems you may encounter with a fixed interest rate mortgage are the difference in interest rates. A fixed rate mortgage will always be higher than an adjustable rate. If you have a bad credit history, you are likely to pay an even higher interest rate than other people with good credit. Because of this, many people choose to take an ARM loan over a fixed rate.

Other things to be mindful of when refinancing to a fixed interest rate, is the likelihood of interest rates dropping dramatically, and you are left with a very high interest rate compared to what others are paying. Apart from this, a fixed interest rate refinance has very few risks involved, and will provide borrowers stability over the long term with their refinancing needs.


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