Interest rates on Fixed Rate Mortgages are still very low! If you plan to stay in your home for the long term, a consistent payment that never changes can help you prepare for your financial future. Plan your budget with a consistent mortgage payment at a low rate that will stay the same through the life of your loan.
What is a Fixed Rate Mortgage?
A fixed rate mortgage loan is a type of conventional mortgage loan with an interest rate that will remain the same through its lifetime. This ensures the borrower’s monthly payments do not change.
Common types of Fixed Rate Mortgages
The 15-year mortgage
When you review 15-year fixed mortgage rates, you will pay less in interest. If you borrow $100,000 to purchase a home at a 4% interest rate, paying over a longer period of time will mean more interest on the money borrowed. So, a 15-year mortgage can significantly cut down on the interest that you pay. Add to that the lower interest rates that are often available for 15-year mortgages and you could have some big savings available.
There are a few benefits to a 15-year fixed mortgage. One of the most cited is that a borrower will pay significantly less interest over the lifetime of a 15-year loan than a 30-year loan. In addition, a 15-year fixed mortgage offers a lower interest rate than a longer-term mortgage.
Due to the more accelerated pace that borrowers are repaying their home mortgage, their monthly payment will likely be higher than with a 30-year mortgage loan. Borrowers receiving a 15-year fixed home mortgage will pay more on their principal loan which enables them to pay off their home mortgage in half the time of a 30-year mortgage loan. 15-year refinance rates are also lower than 30-year refinance rates.
Your monthly payment will likely be higher. Even with the lower interest rate, you will probably have a slightly higher payment with a 15-year mortgage. This happens because you are paying more towards principal from the beginning. But, you will be mortgage-free in half the time, which is no small feat.
The 30-year mortgage
You will pay more in interest when you look at a 30-year mortgage. Longer mortgage means more interest charged. This is how banks and other lenders make their money. They loan you, the borrower, money and collect their interest over the 15 or 30 years it takes you to pay them back. A 30-year mortgage is a popular choice because it offers a lower monthly payment when compared to other fixed rate mortgages. Still, borrowers will pay more in interest on a 30-year mortgage because there is more time for mortgage costs to accumulate.
Because a 30-year mortgage allows a borrower to spread their payments out over a longer period than shorter fixed-rate mortgage options, it is an attractive choice for borrowers who have tight monthly budgets. 30-year refinance rates are also a bit higher than 15-year refinance rates.
What Are the Benefits of Fixed Rate Mortgages?
Your monthly payment will likely be lower. Because you are spreading out your payments over a longer period of time, they will almost always be lower with a 30-year mortgage. If your monthly budget is tight, this may be a better way to go for your residential mortgage.
There are a variety of benefits that make fixed rate mortgages attractive choices for borrowers. One of the biggest is that interest rates are locked in, so they cannot change even if mortgage rates were to dramatically increase over the period of the loan. Because the rates do not change, budgeting payments for a home mortgage is simpler than with other types of conventional mortgage loans. Being aware of what the payments will be also makes it easy for borrowers to shop around for the best loan possible for their situation, as it is easy to calculate the required monthly payments on a residential mortgage.
How it Works
- Monthly payments are based on interest rate, principal loan amount, and amortized interest over 30 years. With a Fixed Rate Mortgage, your interest rate will never change, even if market rates increase!
- Your payment will not change throughout the life of the loan.
- Your actual payment will vary based on your situation and the current interest rates when you apply.
Pay your mortgage off at any time without pre-payment penalties.
For fixed rate mortgages, monthly payments for a home mortgage will be based on factors such as principal loan amount, interest rate, and the amortized interest over 30 years. Once calculated, these rates will not change over the period of the loan even if there are changes in the market.
The actual home mortgage payment required will depend on current interest rates and your specific situation when applying. Fixed rate mortgage loans ensure that borrowers can pay their mortgage off at any time without being impacted by pre-payment penalties other loans may carry.
Do you have any questions about fixed rate mortgages, benefits, differences between a 15 or 30 year mortgage and other conventional mortgages? Give give us a call! Our mortgage specialists are happy to answer any and all of your questions.