As one of the five most expensive states for prospective homebuyers, California has an above-average ratio of adjustable-rate mortgages. From a socioeconomic point of view, it’s not surprising to learn that California borrowers lean toward adjustable mortgages. After all, the Golden State is also known for its high cost of living, and adjustable loan products often feature lower interest rates when compared to their fixed-rate counterparts. From a more pragmatic economic point of view, though, fixed-rate mortgages have quite a few advantages prospective borrowers shopping for a home for sale in Irvine, CA, should be aware of.
This is the greatest benefit of fixed-rate mortgages. Once a home buyer leaves the closing table, the lender will collect the first monthly payment, which will remain the same for the term of the loan, typically 30 years. It’s easier to make financial plans when you know exactly how much your mortgage payments will be. Plus, you won’t have to worry about rising interest rates. As of February 2019, most economists expect interest rates to increase at least twice before the end of the year, but this isn’t something that will affect fixed-rate borrowers.
Mortgage borrowers who chase lower monthly payments often end up with adjustable-rate loans that are more expensive than fixed-rate mortgages. Even though loan officers have become diligent in terms of explaining mortgage origination fees in the Good Faith Estimate, many applicants will fixate on the monthly payment and ignore all the additional costs attached to adjustable and exotic home loans, which means they’ll end up paying more in the long run. Fixed-rate mortgages always have lower origination fees.
Easier Comparison Factor
The process of shopping around for fixed-rate mortgages is simple because these are traditional financing products devoid of exotic features. A 30-year fixed-rate mortgage can be compared against similar offerings in terms of annual percentage rate and closing costs. Mortgage lenders are more likely to negotiate closing costs than they are to lower rates, but this isn’t the case with adjustable products because a more intricate option can always be offered instead.
Refinancing Makes More Sense
Borrowers who are locked into fixed-rate mortgages always have at least two exit strategies: sell the property or refinance. The latter option can be chosen when mortgage rates come down (as long as the cost of refinancing is reasonable), but the long-term savings always make more sense than with adjustable-rate loans. Refinancing from a 30-year to a 15-year fixed-rate mortgage can bring about substantial savings if the property has gained enough equity. Refinancing adjustable-rate loans is something that happens more frequently and at a higher cost to borrowers.
Opting for a fixed-rate mortgage is often the best choice for many homebuyers. Another great choice is to work with real estate agents in Irvine with in-depth industry knowledge and years of experience. Rely on the experts at Irvine Residential Living to help you find your dream home and lead you through the home-buying process. Call one of our friendly agents today at 714-454-6304.