Make Sure “Fixed Rate” Really Means Fixed Rate

Home

8/1/2007, 6:38 pm

I just read a mortgage broker’s website that seems a little less than genuine. In fact, it’s one of many. I won’t identify the mortgage broker, but it’s easy to find it and others if you Google “5 year” “fixed rate mortgage”.

Apparently, the term “Fixed Rate Mortgage” no longer means what it once did. Fixed Rate Mortgage once meant a mortgage with a fixed interest rate for the entire term. Because of the “Fixed Rate”, a home buyer knew at closing what his monthly payment would be each month … all the way to the last payment 360 months later.

The term has been twisted. It now means something much less. The term “Fixed Rate” is now being used to describe loans like 5/1 Adjustable Rate Mortgages!

How can this be? On the site I just read, a 5/1 ARM is described as a 5 year “fixed rate mortgage” that adjusts once a year after the fixed rate period. You can even find 2 year fixed rate mortgages! It seems too deceptive to me.

Fixed Rate should only be used for a mortgage that has a fixed rate from beginning to end. Anything else is NOT a fixed rate mortgage!

Why is this an important distinction? Because if you’re buying a home and your lender looks at you and says, “Certainly. It’s a fixed rate,” you should be able to trust the interest will NOT change from the first payment until the last.

The way mortgage brokers are using the term “fixed rate” on web sites means a borrower should always make certain when a lender says, “fixed rate”, it really means “fixed rate for the term of the loan”. Don’t be misled!

Share This Post ...