What is a Fixed Rate Mortgage?
A fixed rate is pretty simple to explain. It never changes. A fixed rate loan program will have slightly higher rates compared to an ARM but should be considered when the borrowers intend to keep the property for a longer period.
Key benefits of a Fixed Rate Mortgage
Borrowers select a fixed rate loan when they intend to keep the property for the long term. Adjustable rates can and do adjust at predetermined points in the loan term and in a worst case scenario an ARM can actually end up higher than prevailing fixed rates.
A fixed rate provides stability and easier to plan for and budget around. Knowing what your payment will be in 10 years boosts financial planning.
Borrowers are protected from any sudden rate increases in the future, regardless of any market conditions or Fed action.
How does a Fixed Rate Mortgage work?
A fixed rate can range in terms from 10 years to 30 years and also offered in five year increments. A fixed rate provides the peace of mind for home owners who can more easily plan their financial future, knowing their mortgage payment will never change.
The shorter the loan term, the lower the rate but the higher the monthly payment. This is because the mortgage is paid off sooner compared to say a 30 year term. Yet while a shorter term has a higher payment there is also much less interest paid to the lender over the life of the loan.
Frequently Asked Questions
- What if I get a fixed rate and rates go down later?
- Do I pay more interest over the life of the loan with a fixed rate?
You can always refinance to the new lower rates should they become available.
Higher payments are more closely associated with the term of the loan, but a higher rate will mean higher monthly payments.
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