If you want the security of knowing what your home loan payment will be each month, a fixed rate mortgage—one of the most popular types of mortgages—may be right for you. Unlike adjustable rate mortgages, where rates change depending on market conditions, fixed rate mortgages feature interest rates that stay consistent throughout the lifetime of the loan. That means you will never have to worry about your monthly payment going up, and you can manage your budget without surprises.
Buy a Home with a Fixed Rate Mortgage
When you buy a home and need a home purchase loan with a Fixed Rate Mortgage, your interest rate—and your total monthly payment of principle and interest—will stay the same for the entire term of the loan. This predictability can be helpful as you plan your financial future.
There are a variety of fixed rate home loan packages including:
- 30 Year Fixed Rate and 15 Year Fixed Rate Mortgages: The most popular fixed rate home financing packages, they feature rates and payments that will never change despite mortgage rate fluctuations.
- Fixed Rate Interest-Only Mortgages: An Interest Only Mortgage allows you to make interest-only payments at a fixed rate for the chosen term of the loan; after that, the monthly payments will increase to include both principle and interest.
- Jumbo Mortgage: Allows you to finance more expensive properties. Each year, the Office of Federal Housing Enterprise Oversight (OFHEO) sets a conforming loan limit that institutions such as Fannie Mae (FNMA) and Freddie Mac (FHLMC) are able to securitize. Loans with principals above the conforming loan limit are referred to as a Jumbo Mortgage. Because Jumbo Loans are guaranteed by private institutions, they generally have higher interest rates as well as different down payment and underwriting requirements.
Use a Fixed Rate Mortgage Calculator to give you an idea of what your loan may look like.
Refinance with a Fixed Rate Mortgage
If you need to refinance your home loan, a Fixed Rate Mortgage can offer several benefits including:
- Increasing Cash Flow and Net Worth: Refinancing your loan will often lower your interest rate and monthly payment, leaving you with more money in both the short and long term.
- Consolidating Debt: If you have high interest credit card debt, why not roll it into your low interest mortgage payment and save thousands over time.
- Lower Your Interest Rates: Many homeowners with an adjustable mortgage loan are able to refinance and switch to a Fixed Rate Mortgage in order to lock in the low rate for the remainder of the loan.
- Improve Your Loan: If you applied for a mortgage with bad or no credit, your interest rate may be higher than the national average. By paying down debt, making payments on time and practicing responsible borrowing behavior, you can raise your credit score and refinance your loan for a better mortgage interest rate.
Benefits of a Fixed Rate Mortgage
- Decreased Risk: Even if the current interest rate increases, yours will remain the same. This is an essential feature for many homeowners, and it’s one reason why Fixed Rate Mortgages are popular, particularly with first time home buyers.
- Security: With a fixed rate loan, you know that your interest rates will never increase as long as you hold the loan, giving you the security needed to plan for your future. With other types of loans, market fluctuations can cause interest rates to increase, along with your monthly payments. Fixed Rate Mortgages eliminate this problem by securing one, low interest rate that will never change as long as you hold the loan.
- Predictable Monthly Payments: Fixed Rate Mortgages protect homeowners from payment surprises in the future. They offer consistent monthly payments, so you can easily budget your monthly expenses.
- Inflation Protection: Inflation erodes the value of the dollar over time. That means payments made during the last 15 years of a 30 year loan are significantly lower in real terms than the day you first get the loan.
You can contact a loan expert to find out more about fixed rate mortgages.