Why You Should Never Get A Fixed Rate Mortgage

I was reading a book called the barefoot investor, and when he said you shouldnt get a fixed rate mortgage, I was like what the heck is this guy talking about.

Variable rates are so dangerous, its one of the reason why people lost their homes during the 2008 crisis, and fixed rate give people stability in payments and they know what to expect.

But then he presented his case for variable rates and a case for fixed rates and now I am here to present you with it also, so you guys can decide for yourselves and at the end I will give you my thoughts

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Fixed rate vs Variable Rate

First Fixed Rate:

For the entire life of the loan, you will have the same exact rate

This doesn’t matter if rates go from 2% to 15% or from 15% to 2% ( you will keep the exact same rate you had before )

And this gives you stability in payments, because you know exactly what to expect

The con Is that if rates fall to lower level, havent to refinance or swithc loans could be expensive

Variable rates:

While with variable rates, obviously the rate of the loan can change based on current rates

The benefit is, you could benefit from a decrease but could also suffer from an increase

But the benefit is that these rates are usually lower than fix rate mortgage.

They have different variation of them like a 5-1, 7-1 or even a 10-1

When Should I Get a Fixed Rate

I have to be honest, for me personally this would work best

Because when I’m buying a home, I’m thinking about my personal budget and making sure this is a home I can afford

So if the number can switch on me, it wouldn’t be that stable honestly

So more than often:

This will make sense for the average person

When should I get a Variable Rate

– This depends on your financial situation

– Depends on your risk temperament

– And it also depends on the current financial market

For example:

– These rates may differ by a few fractions of a point

– But over 15-30 years they could save you 10s of thousands of follars

– However you’ll be kinda of stressed because you won’t really know what to expect in the future ( well sort off )

Here is why

Initial Cap: by how it can initially change

The periodic cap: a cap on how it can change each adjustment period

Lifetime cap: how high it can go

So my point is, its not like you’re going to go from 4% to 10% overnight

So you can prepare for these increase in rates before hand

This plan works best for people.

Who think they might be moving in the next few years

People that have a strong financial foundation to manage the adjustments.

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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I’m an Accountant but I’m not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.

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