A Return to the Fixed Rate Mortgage

The subprime mortgage crisis scared a lot of folks out of saying the “M” word, but that doesn’t mean that you have to follow suit. The truth is that mortgage isn’t a dirty word. It’s still a powerful word. Let’s go for a change in perspective, shall we?

If you wanted to buy a house in a world without mortgage loans, you would be looking at a lot of cash. Even if you managed to save up part of the money, you would have a long way to go. Now, you might think that saving up the money for a house in your area isn’t too hard. There are people that live in areas where homes are still in the $40,000 range. However, what about if you live in Virginia, right around Washington, DC? There’s no way that you’re going to be able to find a house for $40,000 out there. There are plenty of other metro areas that this logic still applies. Quite frankly, a house is one of the most expensive investments that you’ll ever make. Yes, it can be worth it in the end, but it’s really not about money.

If you pulled aside ten homeowners and really asked them why they thought about buying a house, a good majority of them are going to tell you that it’s really for security’s sake. They want to know that they have an address where no one can kick them out. As long as they continue to make payments on the house, they will always have a place to live. Of course, property taxes and other associated expenses are still important too. There’s no reason to feel like buying a house has to be something that you can only do when you’re trying to make a profit. Despite what reality TV wants you to believe, you don’t have to become a house flipper just to buy a home.

Yet the conversation about mortgages seems to bore people. We aren’t real.ly sure why this is when there really is so much to talk about. For example, let’s take a closer look at the real high points of a fixed rate mortgage.

The fixed rate mortgage is really like the tofu of the finance world. OK, tofu not your thing? Let’s try yogurt. Yeah, that’s it. Everyone likes yogurt, right? Well, if you really had to choose between ice cream topped with all of your favorite trimmings and yogurt…well…we understand if you’re going to choose the ice cream.

But hear us out, we defenders of all things yogurt — sometimes, yogurt really is the better choice.

We can’t predict the future. We can’t think to ourselves that suddenly, we will have more money than where we began. Things happen. People can lose their jobs and have to go off of savings for a while. Either way, you don’t want to have to really think about the future from a position of fear — who wants that? We all want to see our future as a thing of hope and joy, and fixed-rate mortgages can help you do that. Even though you can’t predict the future, you will always be able to figure out where you stand in the world of mortgages. You will always know your monthly payment.

That type of security in a chaotic world is a truly worth its weight in gold. When you’re thinking about how to move forward, it’s important to keep your financial foundation on stable ground.

Now, the other side of the coin says that adjustable-rate mortgages are better in areas where home values are on the rise and interest rates are low — but the reality is that nothing low stays fixed that way for long — except your fixed-rate mortgage, of course. Unless you have it set up where you aren’t going to have your payments go up, your adjustable-rate mortgage might “reset” and your house payment goes up past the level that you can afford. That interest rate doesn’t seem so nice now, does it?

There are some disadvantages. A fixed-rate monthly payment for your mortgage means that most of the money at the start of the loan is going towards the interest rather than the principal. This means that it’s not a suitable mortgage choice for someone that wants to flip a property, since the property would be harder to sell.

You can adjust your scheduling so that you pay more each month, which can actually help you pay your mortgage off faster. Becoming mortgage-free is very appealing to people — as you pay off your mortgage, you’re actually building equity in your home. Equity is definitely a good thing! Speaking of changing the scheduling on your mortgage (amortization schedule, to be proper about it), you might want to look online for a free calculator that can print your amortization schedule for you. This can help you plan your budget for all different types of scenarios. If you expect to come into a large sum of money through work or inheritance, you need to know where to park the money.

If you’re a first-time home buyer, you should really think about going with a fixed-rate mortgage. One of the biggest challenges you’ll face as a new homeowner is trying to make everything work in your budget. After all, you aren’t buying a home in a vacuum, and you shouldn’t think that you are. If you focus more on the big picture, it won’t take you very long to get into a house that’s not only well within your means, but gives you a comfortable place to raise your family!
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