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What Is a Fixed-Rate Mortgage?
How to Get a Fixed-Rate Mortgage
How a Fixed-Rate Mortgage Works
The term "fixed-rate mortgage" refers to a home loan that has a fixed interest rate for the entire term of the loan. This means the mortgage carries a constant interest rate from beginning to end. Terms can range anywhere between 10 and 30 years for fixed-rate mortgages, which are popular products for consumers who want to know how much they'll pay every month.
How a Fixed-Rate Mortgage Works
How to Get a Fixed-Rate Mortgage
How a Fixed-Rate Mortgage Works
There are several kinds of mortgage products available on the market. Lenders advertise and offer variable, or adjustable-rate mortgages (ARM), or fixed-rate loans. With variable-rate loans, the interest rate isn't fixed. Instead, rates are adjusted above a certain benchmark. These rates tend to change at certain periods. Fixed-rate mortg
There are several kinds of mortgage products available on the market. Lenders advertise and offer variable, or adjustable-rate mortgages (ARM), or fixed-rate loans. With variable-rate loans, the interest rate isn't fixed. Instead, rates are adjusted above a certain benchmark. These rates tend to change at certain periods. Fixed-rate mortgages, on the other hand, carry the same interest rate throughout the entire length of the loan.
How to Get a Fixed-Rate Mortgage
How to Get a Fixed-Rate Mortgage
How to Get a Fixed-Rate Mortgage
You can apply for a fixed-rate mortgage at almost any bank, credit union, or mortgage lender. It's best to compare rates among companies. The Consumer Financial Protection Bureau (CFPB) has a great tool to help you explore interest rates. You should also compare fees, points, and closing costs. Check to see if mortgage insurance is required, too.
KEY TAKEAWAYS
A fixed-rate mortgage is a home loan with a fixed interest rate for the entire term of the loan.
Once locked-in, the interest rate does not fluctuate with market conditions.
Borrowers who want predictability and those who tend to hold property for the long term tend to prefer fixed-rate mortgages.
Most fixed-rate mortgages are amortized loans.
In contrast to fixed-rate mortgages, there exist adjustable-rate mortgages, whose interest rates change over the course of the loan.
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How long do I repay a fixed-rate mortgage?
The mortgage term is the number of years you repay the loan. Fixed-rate mortgages usually come in terms of 15 or 30 years. Here are some pros and cons of each term:
30-year
Pro:
For any given loan amount, the monthly payments are lower than a shorter-term mortgage.
Cons:
You pay more total interest over the life of the loan compared with a shorter term.
The interest rate is higher.
15-year
Pros:
You pay less total interest over the life of the loan.
The interest rate is lower.
Con:
For a given loan amount, the monthly payments are higher.
Many borrowers prefer a 30-year, fixed-rate mortgage over a 15-year loan because the monthly payment is lower for the same loan amount. Choosing a longer fixed term means you can borrow more money, too. It can also free up your monthly cash flow for other financial goals, such as saving for emergencies, retirement or your child’s college tuition.
A 15-year fixed mortgage is ideal for people who have the cash flow and want to pay off their home faster at less interest. Your monthly payments will be higher, though, because you’re repaying more principal so run the numbers with your lender to ensure you can afford it without skimping on other financial goals.
Similar payments, different principal amounts
Meet Jill, a first-time buyer with a tight budget. Jill knows she can afford about $1,000 a month in principal and interest. Jill’s lender offers a 30-year fixed with an interest rate of 3 percent or a 15-year fixed at 2.5 percent.
30-year fixed at 3 percent: $1,012 monthly principal and interest for a $240,000 loan
15-year fixed at 2.5 percent: $1,014 monthly principal and interest for a $152,000 loan
Same principal amounts, different interest
For a $240,000 mortgage:
30-year fixed at 3 percent: $124,266 total interest for the life of the loan
15-year fixed at 2.5 percent: $48,053 total interest for the life of the loan, or $76,213 less
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