Overview
A mortgage or a home loan that has a fixed interest rate for the entire term of the loan. The distinguishing factor of a fixed-rate mortgage is that the interest rate over every time period of the mortgage is known at the time the mortgage is originated. The benefit of a fixed-rate mortgage is that the homeowner will not have to contend with varying loan payment amounts that fluctuate with interest rate movements.
Fixed Rate loans are fully amortizing mortgage loans in which the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float”. As a result, payment amounts and the duration of the loan are fixed and the person who is responsible for paying back the loan benefits from a consistent, single payment and the ability to plan a budget based on this fixed cost.
Types of Fixed Rate Mortgages
Fixed-rate mortgages can be used for many lending scenarios such as single-family homes, including 1- to 4-unit primary residences, condominiums, second homes, manufactured homes, and investment properties
30-Year Fixed-Rate Mortgages
The 30-year conventional fixed-rate mortgage has long been popular due to its fixed interest rate and lower monthly payments; however, since the interest payments are spread out over 30 years, you will pay more interest over the life of the loan than you would on a shorter-term mortgage
10-Year; 15-Year; & 20-Year Fixed-Rate Mortgages
With a shorter loan term and lower interest rate, a 15- or 20-year fixed-rate mortgage can help you pay off your home faster and build equity more quickly, although your monthly payments will be higher than with a 30-year loan. The 15- and 20-year fixed-rate mortgages are especially popular for refinancing
Benefits of a Fixed Rate Home Mortgage
One of the main advantages of a fixed-rate loan is that the borrower is protected from sudden and potentially significant increases in monthly mortgage payments if interest rates rise. Fixed-rate mortgages are easy to understand and vary little from lender to lender. The downside to fixed-rate mortgages is that when interest rates are high, qualifying for a loan is more difficult because the payments are less affordable
Interest Rate
With a fixed home mortgage, you should have a rate that is locked in for the duration of the loan and does not change or fluctuate
Payments
With a fixed rate loan, your payment should not change for the duration of the loan
Loan Term
With a fixed rate home loan, the principal and interest should remain the same for the life of loan
Documentation
In some cases in comparison to other home loan types, less documentation may be needed