A fixed-rate mortgage is pretty much what it sounds like: a mortgage with a interest rate that is fixed. Whereas a variable rate fluctuates throughout the term of your mortgage, a fixed rate (and your monthly payment) stays the same throughout the term.
A fixed rate mortgage isn’t the perfect mortgage, or at least, not always. Sometimes a fixed rate mortgage would be the best type to get, and sometimes it could be the wrong type to get.
Here are some pros and cons to help you decide whether a fixed-rate mortgage is for you:
- Offers security during times when interest rates rise quickly
- You can more easily budget for your mortgage payments
- Set it and forget it
- If the interest rate drops, you could be paying more in interest payments each month than you need to be
- You most likely will have to refinance if you want to switch to variable rate mid-term
If you’re worried about mortgage rates dropping, making you hesitant to lock in at a fixed rate, you could try a shorter term (say 1 or 3 years) just to be safe. Not all mortgage lenders offer such term lengths, so always check with your lender first.
While it’s important for you, as a homeowner, to make informed decisions when signing a mortgage, always be sure to contact a mortgage professional to answer your questions.