Fixed Rate Mortgage Loans

Fixed-rate mortgages are the most common type of home loan for homebuyers. With predictable payments, long-term homeowners can plan their budgets and protect themselves against rising interest rates. But a fixed rate mortgage is not for everyone with their highest interest rates and a reduction in their purchasing power.

Characteristics of the fixed-rate mortgage

A fixed-rate mortgage has established rates, low long-term and low-risk monthly payments. Interest rates are determined during the loan application process. The rates are set by the market. You can also reduce your interest rate by paying points in advance. This option only makes sense if you stay in your home for several years.

Low long-term monthly payments are another benefit of this type of mortgage loan. Over time, inflation will increase the price of everything, except the payment of your mortgage. As your salary increases, your mortgage costs will also take a lower percentage of your income. The low risk of fixed interest rates also attracts borrowers. You do not have to worry about rising interest rates or a lump sum payment. You can also pay your loan early, saving money on interest payments.

Mortgage Terms

Traditionally, fixed-rate mortgages had terms of 30 or 15 years. Now lenders offer a couple of additional options. The 30-year loans remain the most popular with their low monthly payments. A 30-year loan also allows you to qualify for more than shorter loans.  Mortgages at 15, 20 and 40 years are also options. The 15 and 20 year loans qualify for lower interest rates, but you will have higher monthly payments between 10% and 15% compared to a 30 year mortgage. Shorter loans also save interest costs, which attracts those who want to pay their loan before retirement or have their children go to college. 40-year mortgages are less common, but offer low monthly payments with higher interest costs. 

The biweekly mortgage, as the name implies, requires half the payment of your mortgage every two weeks. At the end of the year, you have made an additional mortgage payment. You can pay your mortgage in 18 to 19 years. Most lenders also allow you to spend 30 years without penalties.  

Disadvantages of fixed rate 

Even with its benefits, fixed rate mortgages are not for everyone. Alternative mortgages allow you to borrow more than with a fixed rate mortgage. If you move in less than 7 years, you will probably also pay more in interest payments than if you were with an adjustable rate mortgage. Most owners move within the first 7 years of living in a house. It is also subject to an interest rate that could fall in the future.