Finding the right repayment plan for a home mortgage loan can be stressful for new homebuyers. Additionally, choosing between fixed or adjustable Maryland mortgage rates has broader implications for your financial situation during economic uncertainty. Homeowners are right to wonder which type of mortgage they should apply for or if there are any reasons to opt for variable rates over fixed rates.
In this article, we examine the advantages of fixed-rate mortgages during periods of economic uncertainty and additional considerations that can help homebuyers make more informed decisions as they enter a competitive market in Maryland.
What is a Fixed-Rate Mortgage?
A fixed-rate mortgage offers borrowers a way to set their interest rates for the duration of the loan. This allows buyers to make their payments more consistent without worrying about future market conditions. Notably, a fixed-rate mortgage does not assure identical monthly payments. Other aspects of monthly payments, such as property taxes and homeowners’ insurance, can still fluctuate due to policy or tax changes.
Both fixed-rate and adjustable-rate mortgages require repayment over a predetermined period, usually 15-30 years. While fixed-rate mortgages can be advantageous, they typically come with stricter eligibility criteria, such as better credit scores, higher incomes, and larger down payments. While borrowers of both types of mortgages must undergo a vetting process that includes a credit check, pre-approval, and documentation review, lenders may be stricter about the requirements for fixed-rate loans.
What are the Benefits of Fixed-Rate Mortgages?
Buyers can improve their financial situations by locking their interest rates, especially during periods of economic uncertainty. This is particularly significant in Maryland’s volatile housing market, where the interest rates of 15-year and 30-year loans have steadily increased over the last 5 years.
In an uncertain market, the benefits of fixed interest rates are felt more profoundly by homebuyers seeking greater financial stability and future security. These benefits include:
Increased Stability
Fixed-rate mortgages offer financial stability as homeowners plan their finances during economically uncertain times. By fixing the interest rate, homeowners can budget each month more accurately and increase their savings in case of emergencies. Fixed-rate mortgages are most advantageous for homebuyers who plan on living in their new home for many years since they are most likely to benefit from the long-term stability of a fixed rate.
Market Protection
The interest rates of adjustable-rate mortgages fluctuate with changing market conditions. In periods of economic uncertainty, homebuyers seek ways to secure a favorable rate and keep it regardless of the economy’s direction. Fixed rates safeguard your finances over the long term.
Clearer Documentation
Managing a long-term mortgage can require complex planning as agreements, municipal tax codes, and insurance documents change over time. As a result, many homeowners need help deciphering their monthly and long-term payment plans. A fixed-interest mortgage helps to mitigate the confusion by clarifying tax and insurance documents and regulating monthly payment amounts.
Disadvantages of Fixed-Rate Mortgages
In addition to these benefits, fixed-rate mortgage loans come with additional considerations that homebuyers should be aware of. Most notably, the initial interest rate may be higher due to the advantages of fixed-rate loans over adjustable-rate loans. This can lead to higher interest payments overall in the first few years of the loan.
Additionally, while fixed interest rates provide stability, they can be inflexible in situations where an adjustable rate would be more advantageous. For example, just as the market can turn down to increase interest, it can also improve to bring interest down. In that situation, a homebuyer with an adjustable rate could easily take advantage of the market conditions. With a fixed rate, refinancing is required to lock in the lower interest.
Choosing a Fixed-Rate Mortgage in Maryland
According to Zillow, fixed-rate mortgages remain a primary concern for Maryland homebuyers as the median home value has risen 2.5% in the last year to $420,000. This means that the difference of even 0.1% interest will equate to thousands of dollars over a 15-30-year loan.
Due to its potential advantages, a fixed-rate loan may require negotiation with multiple lenders to secure the most advantageous rate. Maryland homebuyers should consider seeking professional advice on how to secure the best rates and get pre-approved for new loans, even in uncertain financial times.
With professional help, homebuyers can find the loan that makes the most sense, including securing a fixed interest rate that offers stability, predictability, and clarity in a challenging market. Despite these advantages, however, fixed-rate mortgages are not ideal in every situation, especially for those who plan on moving again within a few years.
Contact our professional team at Woodsboro Bank to learn how we help Maryland homeowners get the best mortgage rates for their situations, even in economically uncertain times.