- 1. Defining a Fixed-Rate Mortgage
- 2. What Are Common Mortgage Terms?
- 3. Pay Your Loan off Fast
- 4. What About the Different Types of Fixed-Rate Mortgages?
- 5. When Should You Choose a Fixed-Rate Mortgage?
- 6. Adjustable-Rate Versus Fixed-Rate Mortgage
- 7. What Are Some of the Cons?
- 8. Improve Your Profile
- Will You Choose a Fixed-Rate Mortgage?
Eight Things You Should Know About a Fixed-Rate Mortgage
Did you know the housing market is super hot right now? Do you need to apply for a mortgage? If you want to learn about fixed-rate mortgages, we can help.
When it comes to mortgage, it is best that you evaluate all existing options that are present in the market. For example, FHA home loans from Space Coast Credit Union can help you get a lower rate of interest, flexible payment terms and excellent customer support from their teams.
This guide will go over things you should know about a fixed-rate mortgage.
Want to learn more? Keep reading.
1. Defining a Fixed-Rate Mortgage
A fixed-rate mortgage loan doesn’t have a changing interest rate. Most homeowners will choose a fixed-rate loan for their mortgage.
A fixed-rate mortgage will give homeowners a reasonably predictable payment. Each month, the interest and principal payment will remain the same for the length of the loan.
The principal and interest you owe to the lender will get paid off at the end of the loan. Each month, the payment will repay some of the interest. The rest will cover the amount left owing.
The payment will go to interest in the earlier years with a fixed-rate mortgage. As the years pass, the money will go onto the principal.
2. What Are Common Mortgage Terms?
A mortgage loan’s length refers to the amount of time you have to repay the interest and principal. You’ll see different terms when you shop around for a fixed-mortgage rate.
For a 30-year fixed-rate mortgage, this is the most extended term you could encounter. It’s also the most common term for homeowners. A 30-year period will give you super lower payments each month.
With a 15-year mortgage, you will have a higher monthly payment. Yet, you will also have a lower interest charge throughout the loan. 15-year loans will have lower interest rates.
There also might be a 20-year loan offer. The monthly payments tend to be more affordable than the 15-year mortgage. They are less affordable than a 30-year mortgage.
With a 10-year mortgage, the borrower will want to pay off the loan quickly and pay higher payments.
3. Pay Your Loan off Fast
With a short-term mortgage, you will pay off your loan faster and save money on interest. You will also qualify for a lower rate.
Choose this option if you want to quickly pay off the loan.
4. What About the Different Types of Fixed-Rate Mortgages?
You also might encounter different kinds of fixed-rate mortgages. You can get a fixed-rate mortgage for a commercial or residential property. Yet, both will have various terms and interest rates.
Most loans will get paid off by the end of the term. Some balloon loans seek a lump-sum payment at the end. You might refinance to avoid this balloon payment.
Fixed-rate loans can get classified as government-insured loans or private loans. They can get backed by the US Department of Agriculture or the FHA.
For residential loans, you could try to apply for conforming loans. These are loans that fall within federal guidelines. They allow government-backed entities to buy the loans and sell them to investors.
Nonconforming loans, like jumbo loans, are for amounts that go beyond the limit for conforming loans.
5. When Should You Choose a Fixed-Rate Mortgage?
Homeowners pick a fixed-rate mortgage if they prefer to lock in a lower interest rate.
You might want to know the exact amount of interest you’ll pay over the loan. Some people don’t want to worry about refinancing later.
A fixed-rate loan isn’t your only option. Do you have poor credit, or can you only afford a smaller down payment? You might not be able to qualify for a fixed-rate mortgage.
6. Adjustable-Rate Versus Fixed-Rate Mortgage
Interest rates remain constant for the term of a fixed-rate loan. Adjustable-rate mortgages remain constant for the first five, seven, or even 10 years.
The rate will change after the introductory period based on the prime rate. The rate can change every year.
Lenders will also offer variable-rate loans. These loans won’t be sent and instead change each month based on an underlying rate.
7. What Are Some of the Cons?
If the mortgage rates end up decreasing, you’ll still need to keep your high rate. Fixed rates remain at a historic low at the moment.
Yet, adjustable rates can begin to lower. An ARM might be the better option if you move before the intro-rate period ends.
8. Improve Your Profile
Do you want to apply for a mortgage as a first-timer? First, you should look at improving your profile. If your credit score isn’t good, you should look at fixing it. Your score will impact your interest rate.
Consumers with a high credit score tend to get a lower interest rate. Lenders will use your score to predict how reliable you are when paying back loans.
Make sure you keep making payments on time. Don’t forget to review your credit report for any mistakes. Make sure you dispute any credit errors.
Try to improve your situation before you apply for a mortgage. This way, you can get the best possible rate.
What do you plan to buy? Will you buy commercial or residential properties? Have you decided to invest? Learn more about real estate investing.
Will You Choose a Fixed-Rate Mortgage?
We hope this guide on the fixed-rate mortgage option was helpful. Consider this mortgage option if you want to know exactly how much you will pay in interest.
You also might choose this option if you prefer to know your payment each month.
Are you in need of more financial or housing advice? Keep learning about all the ins and outs of housing and financing your new home. We have many resources to browse on the blog, so stick around.
Read Also:
Share this article:
