A Fixed Mortgage Presents a Planned Future

By: David Nalin


Many people looking to nail down a conservative approach to home financing opt to obtain a fixed mortgage as their financing vehicle. A fixed mortgage refers to the establishment of a fixed rate of interest that determines, fundamentally, a set monthly repayment figure. This conservative approach to home financing suits many people seeking to avoid the uncertainty and risk involved with other type of mortgage products available on the market today. Fixed rate mortgages provide an exact number that many conservative financial planners like to implement when arriving at producing a monthly budget.

Fixed Mortgage Provides Sameness
Mortgage interest rates are a percentage of the of the entire loan amount that is part of any monthly repayment instalment. A fixed mortgage rate indicates a borrower pays the same repayment instalment each and every month during the life of the loan, unless other specifications are outlined in the loan terms. The advantage from a fixed mortgage for many borrowers is the very nature or its name, “fixed.” For most people, monthly household incomes are also “fixed.” Therefore if the very same repayment instalment amount is deducted from the monthly household income, budget planning becomes more exact. Consumers with other than a fixed mortgage have to make adaptations every month taking into consideration different repayment instalment amounts based on the conditions of their non-fixed mortgage finance product. Consumers looking to keep to a pre-determined monthly budget planning process should consider using a fixed mortgage as the choice for home financing.

Less Diligence Needed
Although use of a fixed mortgage allows budget planners peace of mind being able to use the same repayment amount each month when devising a long-term money management plan, it can afford a borrower other advantages as well. Different financing vehicles that have variable rates are based on market fluctuations where, in order to produce effective personal money management, consumers using these products must spend a good deal of time, labour and usually some money to track the market movements that will affect the changes in interest rates this particular mortgage experiences. Changes in personal spending habits may need to be implemented in the event a rise in mortgage interest rates cuts into a monthly budget.

Disadvantages Not Taking a Risk
The fundamental disadvantage using a fixed mortgage is when rates drop during good to great market conditions, consumers owning this product do not benefit. This is part of the risk game played in the home financing arena. There is the old adage that without risk there is no gain. However, individuals who are not prepared to see a swing in the account of monthly repayment instalments should consider sticking to a fixed mortgage for home financing. It typically comes down to personal money management needs. The ability to take risks when it comes to money management and market investments will dictate if the conservative approach to home financing in the form of a fixed mortgage is the option needed.

A professional assessment of personal financial situations would help with any fixed mortgage decision making needs.

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