If you've been looking into a home loan, you've probably already discovered that there are fixed rate mortgages in Vermilion County, Illinois, and adjustable rate mortgages. Fixed rate mortgages lock in a specific interest rate which will never change over the life of the loan. Adjustable rate mortgages change depending on the raising and lowering of the prime interest rate. When you're looking into mortgage lending in Vermillion County, it's important to know 4 reasons why a fixed mortgage rate is the better choice as you begin the loan process.
Perhaps the biggest draw for home buyers in choosing a fixed rate mortgage is the stability factor. You'll know at the beginning of the loan exactly what your payment will be for the life of the loan. The only exception to this is if your payment includes insurances or property taxes, which can change the monthly payment slightly. Otherwise, the principal and interest payment will remain the same, because changes in interest rates won't affect your loan since you locked it in at the beginning. This is beneficial for those on a tight budget or fixed income, because if you know how much of a payment you will be able to make consistently, you don't have to worry about interest rates going up. Those with adjustable rate mortgages don't have this luxury. After the fixed period of their loan ends, they are subject to higher payment due to rising interest rates. This can be disastrous when interest rates go up significantly, especially if income remains the same.
Fixed rate mortgages are not only affordable to home buyers because they know what they'll be paying every month, but most fixed rate mortgages can be paid off early without any prepayment penalties. This means that the sooner you can pay off the principal, the more money you'll save over the life of the loan because you won't have to pay interest for all those months that you would if it took the entire life of the loan to repay the mortgage. Although prepayment may not seem possible at the beginning of the loan, the nature of a static payment actually makes this more likely because many homeowners will see an increase in their salary over the years, so with good budgeting you can pay the loan off early and avoid paying more in interest.
3. Low Fixed Rates
In the past, adjustable rate mortgages were favored because they often started out with lower interest rates than fixed rate mortgages. However, with interest rates low right now, it's a good idea to lock in an interest rate if you plan on a 30-year loan because interest rates are likely to go up from here.
Those with good credit scores can qualify for a few different fixed rate options that make it easier to pay off the loan sooner with a very low interest rates. These include 15-year mortgages and biweekly fixed rate mortgages. The goal of these is to speed up amortization so that you can pay the loan off more quickly. These options often have an even lower rate than other 30-year fixed rate mortgages.