Fixed-rate mortgage loans lock in the same interest rate for the entire term, which means your monthly payment will also remain the same. These factors will never change, this type of loan has a high level of predictability. The most common fixed-rate loans usually come in terms of 15, 20, or 30 years. This is a good option for a homeowner looking to stay for at least seven years or more.
Fixed-Rate Mortgages are
Easy to Understand and Predictable
As the name implies, fixed-rate mortgages provide the same interest rate for the life of the loan, which is typically 30 years. You won’t have to face changes to your monthly principal and interest mortgage payments because the interest rate does not change.
It is the most common and simple type of loan for homebuyers. These types of mortgages are popular because they are affordable, predictable, and conservative. As the borrower, you can enjoy certainty and won’t have to monitor changes in the market that lead to interests rate changes. On the other hand, if interest rates drop significantly, it may be a good idea to refinance and take advantage of the lower interest and monthly payments.
Fixed-rate mortgages make sense for homeowners who plan to stay at the home long-term with the purpose to pay off their mortgage. It also makes sense for those borrowers who plan to move-out, but will rent their home and want to secure a long-term financial option.
The most common term for a fixed-rate mortgage is 30 years, but many lenders also offer 10, 20, 25, 40, and even 50-year fixed loans. A shorter term creates a higher payment, but it also means you will pay off your loan faster and will pay a lot less interest. We can assist you in choosing the best option based on your financial goals.
Pros and Cons of a Fixed-rate Mortgage Loan
A fixed-rate mortgage loan has various advantages and disadvantages compared to adjustable-rate or interest-only mortgages. In a nutshell, a longer repayment term gives buyers lower payments or a higher loan amount. However, depending on market conditions, interest rates can be higher and you might pay more interest over the life of the loan if you borrow at the wrong time.
We will monitor market conditions at the time you borrow and help you review the list of pros and cons to determine if this type of loan is right for you.
- The interest rate stays constant over the life of the loan. This feature provides you with certainty and predictability for as long as you have the loan. Knowing exactly what you will pay each month can help you with monthly budgeting and bring you and your family much peace of mind.
- Fixed-rate mortgages are a great option when interest rates are low. When the market conditions allow for low interest rates, you’ll be able to lock in the low rate for a term length of your choice. This is a great advantage if you want a higher mortgage amount, but not a higher monthly payment.
- It has the flexibility to pay off the loan faster. Certain types of loans have pre-payment penalties unlike fixed-rate mortgages. When you feel you are able to afford a higher monthly payment, you will be able to increase the payment amount with the safety of always being able to return to the lower set payment.
- It can provide lower monthly payments or a higher loan amount. If you decide on a 30-year term, it allows for a lower monthly payment by expanding the repayment period. These lower payments mean that you can potentially afford a more expensive home.
- Higher interest rates can affect your monthly payments and the overall loan amount for which you can qualify. Paying a higher interest rate may equate to paying more interest over the life of the loan. If you don’t plan to stay in the home for a long time, you might be better off choosing an adjustable-rate mortgage.
- High upfront costs such as closing costs, origination fees, underwriting fees, and discount points are usually more expensive compared to other types of loans. The borrower has to be ready to cover these initial expenses
- You are locked into the interest rate unless you are able to refinance. Being locked into a low interest rate is a great advantage, but if the rates are high at the time you borrow, this means you’ll have to refinance if you want to benefit from a lower interest rate when the market shifts. Refinancing can cost you time and money, plus it is not a guaranteed option if your credit or employment status changes. This is why a fixed-mortgage makes more sense when market conditions offer low interest rates.
- Not beneficial for borrowers who need to sell their home in the near future. A fixed-rate mortgage is appropriate for people who want to pay off the loan and plan to stay long-term at the home.