Enjoy The Financial Perk Of Fixed Rate Mortgage

If you’re new to the home-buying scene, you’re undoubtedly shocked by how much fresh terms you have to pick up. Do you want a mortgage with a fixed rate?

A fixed-rate mortgage helps to stabilize housing costs by offering a monthly payment that is predictable. Lenders may benefit from borrowers’ higher interest payments on fixed-rate home loans in situations where interest rates drop unexpectedly.

What Is Fixed Rate Mortgage?

An interest rate that remains fixed for the duration of the loan, also known as the term, is associated with a fixed-rate mortgage. The reason these loans are so well-liked is that they offer consistency. With a fixed-rate mortgage, you always know how much is due because your monthly principal and interest payments stay constant. 

Your total monthly payment may vary a bit due to certain additional expenses like property taxes and homeowners insurance, but the principal loan payment stays constant, giving you more financial flexibility to plan and make more effective budgets.

Although 30-year loan terms are the most popular, 20-, 15-, and 10-year loan options are also available. Furthermore, a lot of lenders provide terms that are even more flexible, ranging from eight years to forty years.

How Does It Work?

Although there are many different types of mortgage products on the market, they can be broadly divided into two categories: fixed-rate loans and variable-rate loans. The interest rate on variable-rate loans is fixed above a fixed amount. Then, it fluctuates, meaning that it shifts periodically.

The interest rate on a fixed-rate mortgage remains constant for the duration of the loan. Fixed-rate mortgages are not affected by changes in the market, in contrast to variable- and adjustable-rate mortgages. Therefore, whether interest rates rise or fall, the interest rate on a fixed-rate mortgage remains fixed.

Advantages of Fixed Rate Mortgage

There are advantages to consider when selecting a fixed rate mortgage for your new house.

Stable Payments

It’s easier to budget each month when your mortgage payment essentially stays the same, even though your homeowner’s insurance and property tax payments may vary.

Fixed Interest Rate

For the duration of the loan, your initial interest rate won’t fluctuate based on changes in the market.

Options For Fixed-Rate Mortgage Terms

Your fixed-rate mortgage has a predetermined payback period.

  • 30-Year Fixed-Rate Mortgage

The most popular mortgage term is a 30-year fixed rate mortgage, which lets you spread out your home loan payments over 30 years. Even though it may seem like a long time, this extended timeline lowers the amount of your monthly payment, freeing up more money in your budget.

  • 15-Year Fixed-Rate Mortgage

The interest rate on a 15-year fixed-rate mortgage is usually lower than that of a 30-year mortgage. But you’ll have to pay back the loan in half the time. It is a good choice for cash-flowing borrowers who want to pay off their mortgages as quickly as possible and pay as little interest as possible.

  • Additional Fixed-Rate Mortgage Terms

Lenders may also provide more specialized loan terms, such as eight to thirty years.

What Makes a Fixed-Rate Mortgage Better Than an Adjustable-Rate Mortgage?

You might prefer a fixed rate mortgage loan over an adjustable-rate mortgage (ARM) for several reasons. You can expect stability and predictability from fixed-rate loans. Even if interest rates rise, your rate is fixed for the term of the loan. Fixed rates remove the element of doubt from determining your obligation to pay. As a result, you’ll be able to budget for your savings and other financial commitments because you’ll know exactly what your payment is.

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