What is a fixed-rate mortgage?
A fixed-rate mortgage has the same interest rate for the life of the loan. Most people choose a fixed-rate loan for their mortgage because it protects them from the sudden jump in interest rates that they might experience with an adjustable-rate loan. They're a good option for a first-time home buyer who is using a conventional loan because the fixed interest rate is more stable than an adjustable rate. In fact, many people choose to refinance their adjustable rate mortgage into a fixed-rate one before their interest rate adjusts upward.
What terms are available?
You can get a fixed-rate loan that lasts 30 years, 15 years, or 20 years. The main difference is your interest rate and monthly payment amount. You'll usually pay a lower monthly payment but a higher interest rate for a longer loan term. Most people choose a 30 year or 15 year term.
Advantages of a fixed-rate mortgage
A fixed rate mortgage's biggest advantage is stability. Other advantages are:
- If interest rates increase, your mortgage won't be affected.
- You'll know what to expect from your mortgage payment, making budgeting and planning easier.
- You can refinance this type of loan if rates go down
Disadvantages of a fixed-rate mortgage
- If interest rates drop throughout the term of your mortgage you won't benefit unless you refinance.
- They can be more expensive than an adjustable rate mortgage (ARM)
Is it right for you?
Fixed-rate mortgages are a good option for people who:
- are buying their first home
- can't commit to watching the markets to judge the impact on their ARM
- are looking for stability in their mortgage payments