If you’re seeking to purchase your first home, you may likely feel overwhelmed by the process, in part because there are several different options for mortgage loans. However, research reveals most homebuyers prefer fixed-rate mortgages due to the stability and security they provide. According to the Federal Reserve Bank of St. Louis, the average (not seasonally adjusted) 30-year fixed-rate mortgage in the United States sits at around 3.33%. This figure reached a high point (4.94%) in November 2018. Let’s take a close look at the main reasons why do most home buyers prefer a fixed rate mortgage instead of other options.
What Is a Fixed-Rate Mortgage?
A fixed-rate mortgage (FRM) is a type of loan with an interest rate that does not vary at all, which means the principal amount always remains the same. One sum that can change with an FRM, however, is the monthly payment, which can fluctuate depending on variations in local property taxes. The average rate for an FRM has varied substantially over the last 50 years. According to Statista, the average annual rate on a 30-year FRM in the U.S. was 9.1% in 1975. Since then, this figure has decreased significantly. However, the average 30-year rate has risen in recent years, a trend that has led to a reduction in home sales. Of course, the median price of a home has also changed drastically over the past few decades, as has the nature of a labor market and purchasing power.
The opposite of an FRM is an adjustable-rate (or “floating”) mortgage (ARM), which comes with an interest rate that can vary monthly or annually. With ARM caps, there are limits established on the amount by which payments and interest rates can increase annually or throughout the mortgage’s lifespan. The interest rate for this type of loan is reset according to an index or benchmark, as well as an extra spread known as an ARM margin.
Benefits of a Fixed-Rate Mortgage
Here are three of the primary advantages of a fixed-rate mortgage.
Increased Security & Stability
It appears safe to say that most people enjoy stability and security with regard to their finances. If your job situation (or your spouse’s) carries any degree of uncertainty, an FRM may likely be the more sound option to pursue, especially if there is also a possibility that a recession might be approaching.
Length of Time to Repay
Given that the life of a fixed-rate mortgage is typically long (it can range between 15 and 30 years), you have ample time for reimbursement and no call stipulation is generally included in the loan. A call essentially permits the lender to request that the mortgage’s balance be repaid in full prior to the deadline.
Ability To Refinance To Lower Rates
Refinancing your mortgage can help you reduce your monthly payments (and thus save up for other expenses or debts) or allow you to consolidate your home equity line of credit (HELOC) and first home mortgage into one payment. Homeowners who choose to refinance can also more easily eliminate private mortgage insurance (PMI), which protects your lender in the event that you default on your loan payments.
You can also attempt a cash-out refinance if your home’s value has steadily risen. This type of refinancing option allows you to obtain the difference between your two loans in cash value.
Learn More About Why Do Most Home Buyers Prefer A Fixed Rate Mortgage By Speaking with Mathis Title Company
Speak to the refinancing experts at Mathis Title Company in Fairfax, Virginia to learn more about the benefits and disadvantages of a fixed-rate mortgage compared to those of an adjustable-rate mortgage. We serve multiple towns in the area, including Alexandria, Arlington, Chantilly, and McLean.
Our agents and attorneys at Mathis Title will provide you with personalized assistance and take care of every major aspect of the home buying process, including preparing and reviewing purchase agreements, ordering title searches, preparing closing documents, and collaborating closely with the mortgage lender. Call Mathis Title Company today at (703) 214-4020 or contact us online for more information about our services. You can also ask us if you qualify for our refinance special: for a limited time only, our pricing will be $400 fees plus the title.