Fixed
A fixed rate interest loan is the most common type of mortgage. With a fixed rate, your mortgage rate is locked in for the life of the loan or until you refinance. This means that even if the market changes, and rates dramatically increase or decrease, your loan rate will remain the same.
The largest benefit of a fixed rate loan is dependability. Since you know that the interest rate on a fixed loan will not fluctuate, it’s easy to predict your future monthly payments. This is appealing for homebuyers who want to plan for a long-term investment and are not willing in incur the risk of a variable mortgage.
At the start of the loan, the majority of your monthly payment will go towards interest. As you pay down the loan and build equity, a larger amount of your monthly payment will go towards reducing the principal balance of the loan.
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Deciding on the right length for a fixed loan
The length of a fixed rate loan can range from 10, 15, 20 or 30 years. The most common length is a 15- or 30-year loan. There are pros and cons to weigh when deciding on a 15- or 30-year fixed loan. The most significant advantage of a 15-year fixed loan is that it will qualify for a lower interest rate. With a shorter loan term, the borrower gains equity and pays less interest over the life of the loan. The setback with a 15-year loan is that the monthly payments are higher.
Conversely, a 30-year loan will have a higher interest rate with lower monthly payments. The benefits to a 30-year loan include a larger tax deduction for interest payments, and a more breathing room and time to pay off the loan. With a 30-year loan, there might be more opportunity to watch for a lower interest rate and refinance the loan. The setback with a 30-year loan is that you will have a higher interest rate, pay more interest over the life of the loan, and will not build up equity as quickly as you would with the 15 year loan.
When interest rates are at a historic low, a fixed mortgage is a smart option. Call Signature Lending Services AT 877-948-2562 for advice on what type of loan makes the most sense for your situation, and to find out about current interest rates on a fixed rate loan.