Avoiding the Most Common Fixed Rate Mortgage Loan Traps

By Rob K. Blake
Basically, there are two types of mortgage loans available for prospective homeowners: fixed rate mortgages and adjustable rate mortgages or ARM. As the name implies, an ARM is a type of home loan which has a varying interest rate which usually depends on the current trends in the real estate market.
A fixed rate mortgage, on the other hand, is a type of home loan whose interest rate will remain the same all throughout the loan term. Let's say that you took on a 15-year mortgage at 7.5% interest rate. Unless you decide to refinance or switch mortgage providers, the interest rate will remain at 7.5% for the entire fifteen years that you are paying off the principal of your mortgage loan.
Steering Clear of Fixed Rate Home Loan Traps
Taking your pick between a fixed rate mortgage and an ARM is all a matter of weighing the pros and cons of each. Depending on your household budget and the mortgage amount of the property that you are eying, there are times when a fixed rate home loan will be a more cost-effective choice as compared to an ARM.
However, there are traps that you need to avoid when going for this type of a home loan. First, it is good to remember that applying for fixed rate home loan means that you are making that commitment with the lender or banking institution that you are keeping the loan for a particular length of time - be it 15, 20 or 30 years.
Now, if you decide to refinance your home loan before the loan term is finished, you would have to pay out the amount of the fixed rate home loan. There will also be applicable charges when you terminate a 15-year contract, for example, and decide to refinance your home after only seven years.
The rule of thumb to follow is that the lower your fixed rate is, the higher your payout amount will be. The current trends in the real estate market will also be considered if you decide to take the path of mortgage refinancing. So in order for you to steer clear of fixed rate home loan traps when you are considering applying for a mortgage refinance, remember that it pays to weigh the pros and cons first before deciding which course of action to take.
Possibilities when Dealing with a Fixed Rate Mortgage Loan
The good news is that there are several possibilities that you can consider when applying for a fixed rate mortgage loan if you don't want to fall under the traps that most borrowers run into.
There is absolutely no need for you to choose a fixed interest rate for the entire length of time that the loan is active. What you can do is choose to fix a portion of your loan for a particular period of time. Let's say that you have a 15-year mortgage loan which amounts to $300,000.
Your first option is to choose a fixed interest rate for the entire amount. Your second option is to fix half of the amount for three years, and leave the remaining years at a variable interest rate. Or, you can choose to only have the first couple of years stuck at a fixed interest rate - while leaving the rest of the period variable.
At the end of the day, weighing the pros and cons of applying for a fixed mortgage loan is a must. This way, you will be able to determine whether this is a better option for you as compared to a mortgage loan which has a variable interest rate.
Rob K. Blake, mortgage expert and author, educates mortgage shoppers on finding local providers by state like Washington Mortgage Brokers and Lenders and provides reviews of national companies like Ashwood Financial.
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