Fixed Rate Mortgage

Fixed Rate Mortgage

A fixed rate mortgage is a type of home loan where the interest rate remains constant throughout the entire term of the loan, leading to fully amortized payments. Because the interest rate does not change, your monthly payments remain the same. Fixed rate mortgages typically come with terms of either 15 or 30 years.

Like any financial product, fixed rate mortgages have their advantages and disadvantages:

 

PROS:

  • Stable Payments: Even if overall mortgage rates rise significantly, your locked-in interest rate ensures that your monthly payments will not increase, providing financial stability.
  • Predictable Budgeting: Having consistent monthly payments for the entire 15 or 30 years helps you plan your budget more effectively, making it easier to manage other expenses.
  • Simple Comparison: The fixed rates simplify the loan shopping process because you can easily calculate your monthly payment and compare offers from different lenders.

 

CONS:

  • Potential for Mis-timing: The timing of locking in your fixed rate can be a disadvantage. You might secure what seems to be a low rate at closing, but if rates drop shortly afterward, you may feel stuck with a higher rate.
  • Refinancing Costs: If you choose to refinance your fixed rate mortgage, you could incur substantial fees and costs, which may negate potential savings from a lower interest rate.
  • Higher Initial Rates: Fixed rate mortgages typically have higher interest rates compared to adjustable-rate mortgages (ARMs). If you sell or refinance within the first few years, you may end up having paid more in interest than you would have with an ARM.

 

Overall, a fixed rate mortgage can provide peace of mind and stable payments, but it’s essential to consider your financial situation and plans before committing.

Co-Borrower

Including co-borrowers on your loan application can enhance your chances of approval and secure lower interest rates. They share responsibility for repayment.

Origination Fee

Processing a mortgage involves a lot of work. As the borrower, you’ll need to pay an origination fee to cover the costs of setting up the mortgage.

FICO Score

Your FICO score measures your creditworthiness. It’s one of the most accepted credit scores, created by Fair, Isaac and Company using a specific algorithm.

Cash-Out Refinance

A cash-out refinance means you swap your current mortgage for a new one with a bigger loan. This lets you access the home equity you’ve built up over time.

Related Questions & Answers

There are no related questions

Related Mortgage Articles

There are no related mortgage articles
avanti way financial logo