If people have fixed interest rates on their home, doent this mean raising interest rates wont affect them?

Question

Everybody keeps saying that raising interest rates will cause people who own homes to have to pay more each month.
However, if you have a fixed rate , does that really apply to you?
And if you dont have a fixed rate, cant you get one pretty easily?

Answer 1

yes. Usually a fixed rate mortgage is taken for a set time - perhaps 2 or 3 years. You pay a fixed amount every month regardless of the changes in interest rates.

However, if you try to redeem the mortgage early, either you remortgage or move house then you have a penatly to pay. The tends to be the total amount of any of the equity you have gained since starting the mortgage. Once the fixed time has passed you lose the fixed rate and it changes to the current interest rates (usually variable). At this point it is very wise to renegotiate another fixed rate terms with your existing lender .... if they won't then change companies. They are all looking for your business and will offer good fixed rate terms - especially to new customers.

Answer 2

You are correct with regard to a fixed mortgage, for a family that is not moving or looking to upgrade to a nicer house (of course many families do move and upgrade, happens all the time). Most home buyers take out a 30 year fixed mortgage. (You only refinance when rates have gone lower and it's free money to do so.)

What "everyone" is mainly talking about is adjustable-rate mortgages (ARMs) that have become popular in recent years. For these, the initial interest rate is lower than on a comparable fixed mortgage, but after a few years the rate will adjust to the prevailing interest rate environment -- and so if interest rates have gone up (which they have), suddenly the mortgage rate becomes higher.

The buyer financially benefits at the front end (lower payments) but at the cost of assuming more risk (possible higher payments later). ARMS are NOT necessarily bad -- especially since the average household only stays in a house for something like 5 or 7 years. But they can be abused if you get in over your head and don't realistically acknowledge the possibility of interest rates going up.

Answer 3

You are correct... The big scare is for all those people that had to get an adjustable rate due to difficulties or lack of money. This pretty much describes the majority of people. Sad huh?

Whats even worse is the people going for an "interest only" loan just to get into a home. They fail to realize they are simply renting from the bank and aren't homeowners at all. The financial institutions know how to work it so the average person not doing their homework can qualify for stuff that ultimately surpasses their income and they get in to a even deeper hole. This adjustable rate is just that. A surprise in increase that the lenders try to make minimal when signing the papers.

Ah America, land of opportunity and people who think they deserve soooooooo much more than the money they make !!

: )

Have a great weekend !

Answer 4

If u have a fixed rate mortgage, it will stay at that rate for the agreed term whether rates go up or down.

Changing ur mortgage will cost u money and the way rates change I dont think its worth it unless u have a company that is charging hefty rates on u, but u also have to be carefull as some companies will charge the earth to change or cancell mortgage.

Get advice from a financial advisor or someone u know what they are talking about re mortgages if ur seriously thinking about changing it, its a very big move to make.

Answer 5

you assume that people do not move around or change their financing. people refinance their homes all the time, this often changes the rate of interest, so even if they had a lower fixedrate of interest, the refinancing would change that. Also peoplee move and sell their home, when they do whatever home they buy next (assuming they do) will have a different financing plan and rate of interest. Finally you are missing the equity issues associated with the home. people use home quity to borrow money on lines of credit, as interests rise the credit line rate of interest that banks give will also rise since line of credits have variable rates. So rising interest do have a very real and sometimes immediate impact on those with fixed rates.

Answer 6

Yes. A fixed interest rate allows you to be locked in to that rate. Rates can rise or fall, yet your fixed rate will remain the same. You can refinance to try to get a lower rate. To get a good fixed rate you need a pretty good credit rating score.

Answer 7

If you have a fixed interest rate then it will not move
as other interest rates, such as the prime rate, move.
The non-fixed rates will move with the prime rate there-
for persons without fixed rates will pay more it the interest
rate goes up.
You can get a fixed rate if you have good credit and it
is to the lending institutions benefit to lend to you or
rewrite your mortgage to keep you from going elsewhere.

Answer 8

Correct, but many have ARMs (adjustable rate mortgages) which do move with the interest rates

Answer 9

No change will occur with a fixed rate and yes, it is easy to get one.

Answer 10

yes fixed to when they took
it out