Why fix a 25 year fixed rate mortgage?
Answer:The 25 year fixed rate mortgage is not the most popular FRM on the market. However, it has distinct benefits. Choosing a 25 year fixed rate home loan you may be paying some more now, but in the long run you can be a winner. Compared to 30, 40 and 50 year FRMs, the 25 year fixed rate mortgage saves on interest cost and is a winner if there are no prepayment penalties.
The best 25 year fixed rate mortgage:
- has no prepayment penalty;
- will allow extra payments towards the principal;
- provides protection against rising interest rates, as all fixed rate mortgages do;
- even if there is a prepayment penalty, it is shorter than or equal to the time you intend to keep the house.
Since there is no guarantee whether rates will go up or down after 25 years, it may be wise to have the opportunity to refinance, should the rates go down.
If you do not intend to keep the house, but took a 25 year fixed rate mortgage, you probably had doubts for how long you are going to need the house. If you clearly need to move out within 5 to 7 years, taking a 25 year fixed rate mortgage is a loser. If you plan on keeping the house until you could afford something better, taking a fixed rate mortgage for 25 years and no prepayment penalty is a safe strategy.
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