What Is A Fixed Rate Mortgage?
As its name implies, a fixed rate mortgage is one where the interest rate on your home loan remains the same throughout its duration. This differs from a loan where the interest rate may change over time, such as an adjustable rate mortgage. Fixed rate mortgages are the most popular form of home loan in the United States largely due to the appeal of a consistent mortgage payment amount over the life of the loan.
In many instances, fixed rate mortgages have higher mortgage payments than adjustable rate mortgages. This is most often because the interest rate remains unchanged for the duration of the loan. Typically, loans with longer terms will have a higher interest rate than loans with shorter terms due to interest rate risk, or the possibility of fluctuating interest rates.
Fixed Rate Mortgage Benefits
The biggest benefit of a fixed rate mortgage is the fact that the interest rate does not change over time. This allows you to budget your finances and make a consistent, fixed principal and interest payment over the duration of your loan.
While your principal and interest amounts will not change, the amount needed for property taxes and insurance may.
Fixed rate mortgages allow you to lock in an interest rate and principal and interest portion of the payment for the entire life of your loan. Your rate and the principal and interest payment never increase, even if the market changes – giving you peace of mind.
Other benefits include:
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