When it comes to choosing a mortgage, few choices offer peace of mind like a Fixed-Rate Mortgage. These loans offer both predictability and stability. For many homeowners, the simplicity of these loans make them the perfect choice in today's ever-changing economy. So what makes this type of mortgage so appealing? Here's why they can be a good fit for your home financing needs.
What is a Fixed-Rate Mortgage?
A fixed-rate mortgage is a home mortgage loan that offers a single rate for the entire length of a loan. Whether you choose a 15-year, 20-year, or 30-year term, your monthly principal and interest payments stay consistent over the loan's lifespan. Changes in the market won't impact your rate, making fixed-rate loans popular for many borrowers.
How Does a Fixed-Rate Mortgage Work?
Borrowers who get a fixed-rate mortgage will lock in their interest rate at the beginning of the mortgage process. Once the borrower is approved for the mortgage loan, this interest rate will stay the same for the entire loan. This means you'll pay the same principal and interest amount for every monthly mortgage payment.
Understanding a Fixed-Rate Mortgage Payment
Most fixed-rate mortgages are amortizing loans, meaning your monthly payments will cover both your principal and interest. In the first few years, most of each payment will go to paying off interest, rather than the principal.
Let's say you have a 30-year fixed-rate mortgage and your monthly payment is $2,500. When you start paying off your mortgage, $2,300 of the $2,500 payment goes toward interest. Only $200 goes toward the principal. But as you progress through the life of your loan, the payment allocation gradually shifts. At some point, you will pay an equal amount in interest and principal.
By the end of the loan's amortization schedule, you'll pay a lot more principal than interest. At some point, you will end up putting $2,300 toward the principal and $200 toward interest. Eventually you get a total reversal of how you started.
How Are Fixed-Rate Mortgages Different From Adjustable-Rate Mortgages?
Another mortgage choice that affects your interest rate is an adjustable-rate mortgage, or ARM. With an ARM, you'll pay a lower interest rate during the starting period. These loans can vary in length from one ARM to another. After the set starting fixed-rate period, the rate on an ARM can adjust up or down based on market conditions.
Whether you decide to go with a fixed-rate mortgage or an ARM will depend on a few factors. Know these facts about ARMs before making your decision:
ARMs are risky
The big risk with an ARM is that interest rates can go up. When that happens, you'll pay more in interest every month if you're past the starting set period. The starting set period is typically the first 5, 7 or 10 years of the loan. If mortgage rates are low when you're approved for the loan, you can be better off with a fixed-rate mortgage.
ARMs are cheaper upfront
Fixed-rate mortgages typically have a slightly higher rate than ARMs starting out. But, once an ARM's low introductory rate period ends, your rate can increase, causing your monthly payments to go up.
ARMs can make sense for shorter home stays
An ARM's low starting rate can be tempting. This is especially true if you don't plan on living in a home for a long time. If you plan on selling your house before the rate adjusts, you can save money with an ARM.
Breakdown of Fixed-Rate vs Adjustable-Rate Mortgages
| Feature | Fixed-Rate Mortgages | Adjustable-Rate Mortgage (ARM) | |---------|---------------------|--------------------------------| | Interest Rate | Fixed for the life of the loan | Changes after starting period | | Payment Consistency | Stable monthly payments | Payments can vary over time | | Best For | Long-term homeowners | Short-term or flexible buyers |
Why Choose a Fixed-Rate Mortgage?
You'll have more predictable monthly payments
The most appealing part of a fixed-rate mortgage is that your monthly payment stays the same throughout the loan. The only part that can change is an increase or decrease in what you owe in property taxes and/or insurance.
Your interest rate won't change
With a fixed-rate mortgage, you lock in your interest rate from day one. This protection from rate increases gives you financial stability and peace of mind throughout your homeownership journey.
You can compare choices more easily
Fixed-rate mortgages make it simple to compare different lenders and loan options. Since the rate won't change, you can focus on finding the best rate and terms for your situation.
Is This Type of Mortgage Right for You?
This type of mortgage is great for:
- Families on a Budget: Consistent monthly payments make it easier to plan for other financial goals. Check our mortgage calculator to estimate your payments
- Long-Term Homeowners: If you plan to stay in your home for many years, the consistent payments give unmatched stability. Learn more about conventional loans
- Risk-Averse Buyers: Avoid the uncertainty of interest fluctuations with an adjustable rate loan. Explore our qualified mortgage options
But if you plan on refinancing soon, it makes sense to consider adjustable-rate mortgage and other loan choices as well.
Getting Your Fixed-Rate Loan
At SRK CAPITAL, we make the process of finding the best mortgage simple. We offer you access to over 150 lenders and a variety of loan choices. That way you can get the best rate available. If you are interested in buying or refinancing, we offer great fixed-rate mortgage choices. First-time buyers can also benefit from our specialized programs.
The Time to Act is Now
With interest rates always in flux, there's no better time to explore your mortgage choices. By locking in a rate today, you'll have payment stability for years to come. Contact SRK CAPITAL today to get started!