Is fixed rate home loans really fixed?

The fixed rate home loan is the by far the largest selling mortgage in all the sectors. It comes in the format of a 15 year fixed or a 30 year fixed mortgage. Since, by definition the home loan means a fixed interest rate, few people try to understand its intricacies. It is increasingly important to analyze the fact in a time when the average fixed mortgage rate has fallen to a record low of 4.85 percent.

The lender has various tricks through which he makes a fixed home loan into an adjustable loan according to his requirements. Most of the people who get into a fixed loan mortgage do it because of a security that they know that their monthly payments are not going to increase. But, the lenders use this to their benefits and charge at a high monthly installment which would have otherwise not been required, since even the lenders can’t predict what will happen to the interest rate in 15-30 years.

Before getting into a fixed loan mortgage, the home loan owner must ask himself that, whether he thinks the interest rate is low enough, whether he can afford it and whether he will own the house for a long period? The borrowers should ask quite a many lenders for quotes before deciding on one. Moreover, the home loan should be wary of a number of upfront costs which come along a fixed rate loan.

The prudence of a fixed rate home loan can only be understood, when the buyer intends to own the home for a long time. Since the fixed rate is always higher than ARM i.e. adjustable rate mortgage. If the overall rates decrease the monthly payment still remains the same, hence the home owner is losing equity, unless he decides to refinance the property at a lower rate. But, this again sometimes is not preferable, since closing costs are also involved. It is necessary to determine the time in which the closing cost would be covered.

Lenders collect an advance reserve fund in taxes and insurances. This reserve fund will further increase the closing costs. It is more sensible to personally take care of the taxes and insurances because the lenders may make you pay .25-.5% more than what was due. The lenders also can ask the home owners who pay the mortgage loan owners to pay off the loan in a certain time limit. This is usually forced by falling interest rates.  If accepted the borrower ends up paying more than 6 months extra interest rates.

Though fixed rate home loan is probably a better type of home loan than others, still it is essential to check the veracity of the claims made by the lender. Any hidden costs or risk factors must be disclosed by the lenders. The borrowers should also take professional advice to ascertain that whether the fixed rate home loan is really fixed. After all, the borrower has to live with for a long time.