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Why Do Most Homebuyers Prefer A Fixed Rate Mortgage?

By Jim Micheals

In recent years the sub prime lending market has introduced adjustable rate mortgages which come with low interest rates compared to fixed rate mortgages. While these mortgages come with low rates, many people still prefer fixed rate mortgages. There are various reasons why most home buyers prefer fixed rate mortgages.

Fixed Interest Rate

The first reason why most home buyers prefer a fixed rate mortgage is because the fixed rate mortgage will come with a fixed payment over the life of the loan. This differs from adjustable rate mortgages which come with the risk that interest rates will rise. If interest rates rise over the course of the mortgage the borrower will be subject to increased payments. This could cause the borrower to have to make a monthly payment which is unaffordable.

Hedge Against Inflation

The second reason why most home buyers prefer a fixed rate mortgage is because the fixed rate mortgage will help the borrower hedge against the risk of inflation. As inflation sets in, interest rates will begin to increase along with the prices of every other product for sale. While inflation will negatively affect renters, and those with adjustable mortgages, those with fixed rate mortgages will not be affected by increased costs.

Less Fees

The third reason why most home buyers prefer a fixed rate mortgage is because the fixed rate mortgage will often come with less fees than adjustable rate mortgages. Since adjustable rate mortgages are inherently riskier investments for banks, the banks are forced to charge higher fees to compensate for the risk. These fees, which can come at origination or through private mortgage insurance, could cost a borrower thousands of extra dollars.

Related posts:

1. Do Buyers Prefer Fixed-Rate Mortgages in Today’s Market?
2. Can A Fixed Rate Mortgage Be Beneficial When Buying A Home?
3. Why Should I Refinance To A Fixed Rate Mortgage?
4. How Can A Fixed Rate Mortgage Be Beneficial When Buying A Home?
5. Why Do Buyers Prefer Fixed Rate Mortgages in Today’s Market?