The Cost of Fixed-rate (for lack of a better term) Security

The purported attraction of a fixed rate loan is security.  The lender assumes all the risk of changes in interest rates. That comfort comes at a price, however. On one hand, the borrower knows what his or her rate and payment will be for as much as thirty years. This price premium is, in effect, insurance that the borrower buys annually to have the lender assume the interest rate risk. Over the life of the loan, the cost of that insurance can add up:

Additionally, most (not you, of course) home owners that have owned a home for 10 years have a refi history that looks something like this:

• 2002 - $300,000  30 year fixed 6.5% to lower monthly payment.
• 2005 - $375000  20 year fixed 5,25% cash out at historically low rates.
• 2010 - $350,000  20 year fixed 4.25% to lower rate and payment
• 2013 - $327,000 15 year fixed 3.25% to save a ton of money in interest.

Average cost (whether out of pocket, out of equity or via a higher interest rate, I promise you, there's always a cost) per transaction: $4500 x 4 refis = $18,000.

Security? Only in an ideological sense.  

Whenever you find yourself on the side of the majority it's time to pause and reflect.  ~Mark Twain

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