Many people opt for 5-year fixed mortgages because it is suggested by their friends or relatives. They do not study the benefits and drawbacks of these mortgages. Here are a few common myths that people have about these mortgages:
- a) There are many people who opt for these mortgages because they consider them to be safer. In a recent study it was found that people lose thousands of dollars because they have chosen a fixed rate mortgage over variable rate mortgage. Most countries are reducing their interest rates on mortgages every year to increase the demand in the housing sector. If you have opted for fixed rate mortgage you will continue to pay high interest rate to the lenders.
- b) There are many people who opted for these mortgages because they feel the interest rate is likely to rise. These people stand to lose when the interest rate falls. With most economies in the world showing negative growth the possibility of rise in interest rate looks unlikely. Most analysts do not expect the interest rate to rise for next few decades.
- c) There are many people who opt for fixed-rate mortgages because they believe that monthly installments will change when they opt for variable-rate mortgage. This is a myth as the payment that you make towards your variable-rate mortgage will not change when there is a fluctuation in rate of interest.
- d) Many people who opt for 5-year mortgages believe that lenders charge lower rate of interest for short-term loans. This may be true for some lenders but not all lenders. Therefore it is important that you compare the rates charged by various lenders before opting for 5-year fixed mortgage.
By Ella Mathews