30 Year Fixed Rate Mortgage: Is it the Safest Option?

A 30-year fixed rate mortgage offers the most predictable schedule for payment but not always the safest. With this option, a home buyer knows exactly what payments will be each month for the next 360 months. There is comfort in this stability. However, other options may offer more favorable structures.

Variable Rate Loans

Variable rate loans are popular because they allow a home buyer to make smaller payments in the beginning of a mortgage when they are less able to pay. Most borrowers will see a rise in income and ability to pay the longer a loan is open. Allowing the debt to grow with the income can be preferable.

Capping Adjustments

Unfortunately, variable rate loans often adjust to a higher rate more rapidly than incomes can handle. If a loan climbs too high too fast, a borrower can find himself or herself in a default situation. It is safer to cap how high a rate can adjust. This can only be done in certain situations where lenders are willing to make the arrangement. An interest rate can be capped at a few points over the national prime rate. It is also possible to cap a rate at a few points over the initial interest rate.

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