A fixed-rate mortgage is a loan where the interest rate remains the same for the life of the loan. In other words, your principal and interest rate do not fluctuate over time. But do keep in mind that your mortgage payments can fluctuate. This would happen if your property taxes or homeowners insurance rates go up or down. This type of mortgage loan is the most popular and usually includes a lifespan of 10, 15, 20 or 30 years. There are shorter loans options, but these will carry large monthly payments due to lower interest rates and the overall loan cost.
Example of a Fixed-Rate Mortgage
Take a $200,000 fixed-rate mortgage for 30 years which equals 360 monthly payments at an interest rate of 4.5 percent. The monthly payment will be approximately $1,013. The annual interest rate can be broken down into a monthly rate. Take 4.5 percent divided by 12 months equals an interest rate of 0.375 percent. Every month you would pay 0.375 percent interest on the amount you actually owe.
Who benefits from a Fixed-Rate Mortgage?
Fixed income households – Fixed-rate mortgages offer predictability. In other words, you know exactly how much interest you will pay and principal on the loan. Plus, the interest is tax-deductible so those who are retired or on a fixed income will benefit from these loans.
If you are unfamiliar with the loan process – Whether you are a first-time homebuyer, are retired or prefer a simple loan approach, fixed-rate mortgages are easy to understand.
Those that prefer flexibility – Whether you want to pay the same amount each month or prefer some months to pay more, fixed-rate mortgages offer flexibility. This gives freedom as to how best to pay back the loan and in what timeframe works best.
Buy Your Dream Home
Call To Apply For A Loan