Slight increases in
interest rates raise your hackles. Tension grips your mind as to how you are going to make extra payment. Preparations begin right then to provide for repayment, though it requires a huge cut in monthly expenses.Cautious is what describes your state. A fixed rate mortgage will be solution to stress that they are facing as to repayment.
A Fixed rate mortgage, as name suggests limits interest rate to a particular level. The borrower is protected against any increases in interest rate. He keeps on making a lower repayment, when his contemporaries who did not have a fixed rate to protect them, pay a higher interest.
Apart from savings that a fixed rate results into, it also has an added advantage. The borrower is not required to make regular calculations considering newer rates. He keeps on paying same monthly repayment that he paid at beginning.
This however is not free from any disadvantages. We deal with disadvantages of fixed rate mortgages in following paragraphs.
A borrower normally opts for a fixed rate mortgage to protect him/ her from hikes in interest rates. But they fail to consider a situation when interest rates start falling. The entire statistics of borrower fails and he feels cheated.
In such a scenario he is left with no options except to continue making repayments, or look for refinancing mortgage through remortgage. Continuing with repayments will mean that mortgagor pays higher than what he actually owes.
Even remortgaging will not produce desired results. The lenders accept to remortgage fixed rate mortgage only when they find it having some potential. Also borrower will have to accept remortgage at lenders terms. This means that borrower will have to face a loss in both cases – whether he chooses to continue repaying or he goes for a remortgage.
The second drawback of a fixed rate mortgage is that rate of interest is not kept fixed for entire period of repayment. The interest rate is fixed for initial few years. After that borrower has to pay a repayment according to interest rate prevailing in market.
