In an ideal world, most home buyers will utilize cash to purchase their homes and own the property outright without having to worry about mortgage payments every month. However, that is seldom the case. One would have to be substantially well-off to be able to do that.
When we turn to mortgage loans to purchase a house, we would most commonly be left with a choice of floating or fixed rate mortgages. Although there is a considerable growing trend of borrowers going for floating rates, the key benefits of fixed rates shouldn’t be ignored.
A fixed-rate mortgage guarantees a rate for your home loan that will not change with fluctuating market sentiments. Because of this, your monthly repayments will not change. This is turn enables you to plan your lifestyle and personal finances with a certain degree of certainty without having to worry about the effects of sudden interest rate jumps on your lifestyle. When interest rates do rise, you will be protected. And if interest rates fall, you have the option to refinance at the lower rate provided your lock-in period is over.
In your search for a good home loan, you may find that packages with floating rates are much more attractive during the initial period of the repayment period. But keep in mind that over time, when interest rates increase, you might find that you have a mortgage that is impossible to repay. The option of refinancing is available after the lock-in period of floating rate mortgages.
However, that is only viable if the market is in your favour at the point of refinancing. Depreciating property value, high interest rates, government policies, etc, can all deem refinancing undesirable. These macro factors cannot be controlled and predicted. But a fixed rate mortgage can lay out with confidence of your whole housing loan structure over the whole term. This is even when market rates does not favor refinancing your loan.
If you are an individual that does not like to take risks, fixed rate mortgages might be more suitable for you than floating rate mortgages. It provides stability and can also offer flexibility when market sentiments change. Not only will you have peace of mind from the predictable repayments, you can also have the flexibility to switch to a better deal when the time is right.
By Andrew Watson