Fixed-rate mortgages are the most common type of mortgage selected by homeowners today. You are able to lock into a set interest rate which results in monthly mortgage payments that remain the same for the entire life of the loan. According to Warren Buffet, “the smart way to own a home has three elements: a fixed mortgage, affordable payments, and long-term hold.”
A fixed-rate mortgage (FRM) is a type of mortgage with a specific rate term. A fixed-rate mortgage has a fixed interest rate for the entire length of the mortgage term. These mortgages are typically available in 5 year increments between 10 and 30 year terms. The 30-year fixed rate mortgage is the most common type of mortgage people take out.
- You have a more consistent monthly payment and you don’t have to worry about rising interest rates.
- The monthly payment stability will make budgeting easier.
- If rates decrease, you can refinance the mortgage into a lower rate.
- You are able to lock in a low rate. If you obtain a fixed-rate mortgage while interest rates are low, you can take advantage of lower monthly payments.
- The overall interest you pay on a 30-year fixed-rate mortgage is higher than loans with a shorter term or an adjustable rate.
- If interest rates decrease, you cannot take advantage of reduced mortgage rates without refinancing into a new loan.
- During the first few years of a 30-year fixed-rate loan, a large portion of your payment is applied towards the interest as opposed to the principal. This means that during the early years of the mortgage, you won’t build significant equity in the property.
Is this right for you?:
A fixed-rate mortgage may be a good option for you if:
- You plan to live in your house for more than five or ten years
- You want relatively consistent monthly mortgage payments
- You want to be able to budget effectively for the long term
If you have any questions regarding what a fixed-rate mortgage is and how it can benefit you, please click here to contact a licensed Mortgaged Loan Originator.