A fixed-rate mortgage is what most people have in mind when they think about a home loan.
It is a traditional type of loan where the rate of interest is set at the time the loan is taken out and remains same throughout the life of the loan.
Even if market interest rates rise, a fixed-rate mortgage interest rate is protected and will not fluctuate.
Types of Fixed-Rate Mortgages
Here are a few types of fixed-rate mortgages:
30-Year Fixed-Rate Mortgage*
This is the conventional plan that allows you to repay your loan in 30 years. Since the payments are spread over 30 years, monthly payments are most affordable with this option. Payment amounts do not fluctuate over the life of the loan and remain stable and predictable.
15-Year Fixed-Rate Mortgage*
With lower interest rates than a traditional 30-year mortgage, the 15-year can be an attractive option. Your payments are set at a rate that allows you to pay off your mortgage in half the time – without double the payments.
5-Year Fixed-Rate Mortgage*
In this hybrid type of mortgage, the interest rate is fixed for the first five years, after which the loan is converted to an adjustable-rate mortgage. Depending on the situation, your interest rates could drastically increase after the initial 5 year period. Choose this option only when you are completely sure that you will be selling within 5 years.
Some Pros of Fixed-Rate Mortgages
In a fixed-rate mortgage plan, the borrowers can make regular, predictable payments for a set period of time. The interest rates do not change with the market.
Fixed rate mortgages are simple, straightforward, and easy to understand. The schedules and stipulations are not complex.
Some Cons of Fixed-Rate Mortgages
Although a fixed-rate mortgage is a popular choice for homeowners, it can be difficult to qualify for them. This is because borrowers may need a significant down payment or high credit rating in order to be approved.
Often they have higher interest rates than the initial rates on adjustable-rate mortgages, making them difficult to choose for short-term financing plans.
They also may not be the wisest option if interest rates are set to fall. If they do decrease during the term of the loan, a borrower cannot reap the benefits of the new lower rates without refinancing.
When You Should Opt for a Fixed-Rate Mortgage
A fixed-rate mortgage is appropriate when you need stability and predictability in your payment amount. It’s also a great option for homeowners who are expecting to be in their home for the long term.
With a team of experienced loan advisors, TILA Mortgage is a mortgage company in Tacoma. Also offering services in Seattle, Everett, Bellevue, and throughout Washington State, they help homebuyers acquire fixed-rate mortgages without any hassles. From the initial consultation to closing, they provide comprehensive services for borrowers. Call them today to see how they can help with your home loan needs.