Fixed Interest Rate on Mortgage with Escrow

Fixed Interest Rate

A fixed interest rate on a mortgage means that the interest rate you receive when first acquiring the loan is the interest rate that will remain consistently throughout the entire amortization. The interest rate won't get higher or lower as long as you pay the loan as agreed. Mortgage loan rates that are fixed are an especially good idea to get if you can secure the loan during a time period when interest rates are quite low. The reasoning behind this is your interest rate will always be low with a fixed rate mortgage, whereas an adjustable rate mortgage secured during low interest rates probably has nowhere to go but up.

One of the first questions you will be asked when applying for a mortgage loan is whether you prefer a fixed interest rate or an adjustable interest rate. To make this decision easier you should consider the following questions:

• Do you plan on living in the home for many years? If you plan on staying in the home long term then a fixed interest rate may be your best option.

• Do you know with certainty that you will not be in the home over a specific number of years? Members of the military and other people who move often may benefit from an adjustable rate mortgage if the main concern is low interest rates.

• Does your budget dictate a certain amount of monthly payment you can afford without much wiggle room? A fixed rate mortgage has the same monthly payment each month, making it easier to budget for your mortgage.

There are plenty of other factors to consider when deciding whether or not to choose a fixed interest rate on mortgage with escrow. Fixed rates are the industry standard and many financial experts suggest that the best mortgage loan terms are fixed rates at the lowest amortization possible.

Escrow Accounts

When discussing mortgage terms, escrow generally refers to the account which holds the funds which are used to pay real estate taxes and homeowners insurance, or perhaps one but not the other. Lenders have a vested interest in making sure that borrowers pay their real estate taxes and homeowners insurance:

• If real estate taxes aren't paid on time the home may be forced into foreclosure, even if the mortgage loan is current.

• If homeowner's insurance premiums are not current and a natural disaster levels the house, the borrower and the lender are both out on an important investment.

For these and other reasons, lenders prefer to handle paying the taxes and insurance even though it creates a need for a mortgage servicing department. Some lenders use escrow as a method by which to collect excess funds without needing to pay interest on the money, but the majority of lenders utilize escrow in a responsible manner.

Escrow Waivers

The thought of not being able to pay your own taxes or insurance may not appeal to you. In fact, many borrowers would rather pay these items on their own instead of trusting the lender to take care of it. Depending on the lender, it may not be a problem at all for you to pay these items on your own. On the other hand, many lenders either do not offer the option at all and require an escrow account, or instead charge a fee for waiving the escrow requirement. Lenders may also check a borrower's credit report before allowing the borrower to handle the taxes and insurance because the lender wants to make sure the borrower can be trusted to pay promptly.

Fixed Interest Rate on Mortgage with Escrow Options

You have further options beyond fixed rate versus adjustable and escrow or no escrow. You also need to decide how long the amortization for the loan should be. You may want to consider taking the shortest term that you can afford, because this will potentially save you thousands of dollars in interest charges over the life of the loan.