Advantages and Disadvantages of a Fixed-Rate Mortgage - Escraft Online Digital

Advantages and Disadvantages of a Fixed-Rate Mortgage

Both borrowers and lenders in fixed-rate mortgage loans faces varying risks which are usually centered around the interest charges.

For instance there is a lower risk for a borrower and higher risk for a lender when fixed-rate mortgage interest rates rise.

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Borrowers tend to lock in lower rates of interest to save money over time. When rates rise, a borrower maintains a lower payment compared to current market conditions.  A lending bank, on the other hand, is not earning as much as it could from the prevailing higher interest rates.  Therefore banks will forego profits from issuing fixed-rate mortgages that could be earning higher interest over time in a variable rate scenario.

In a market with falling interest rates, the opposite is true.
Borrowers are paying more on their mortgage than what current market conditions are stipulating.  Lenders are making higher profits on their fixed-rate mortgages than they would if they were to issue fixed-rate mortgages in the current environment.  Of course, borrowers can refinance their fixed-rate mortgages at prevailing rates if they are lower, but have to pay significant fees to do so.