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Fixed-rate Mortgage Loans

Predict the payments of your mortgage by getting a fixed-rate mortgage. Be prepared to assume your debt straight up, ensure your financial health and live stress-free!

What is a fixed-rate mortgage

As we already know, a mortgage is a secured loan, which means that the property secures the repayment of the debt and this loan amount goes according to this asset. If you were to fail in the loan repayment, you would take the risk of losing the property. In other words, the property acts as the collateral. There are many types of mortgages but the one most demanded by the market is the ones that fix your rate and allow you to pay the same amount each month during your loan term. 

So, it basically predicts a set monthly amount to pay the debt, including the interest rates in an overall amount. This could be beneficial for borrowers because if rates start rising, they still pay the set amount agreed before signing the contract, which means a way to make it easier for the borrower to repay and provides stability for them.

In this type of mortgage, loans tend to have lower interest rates when they are shorter in loan’s term. They loan terms usually offered are:

  • 40-year fixed-rate mortgage
  • 30-year fixed-rate mortgage
  • 20-year fixed-rate mortgage 
  • 15-year fixed-rate mortgage
  • 5-year fixed-rate mortgage

The most commonly used and offered by the entities are 15-year and 30-year mortgages.

 

Fixed Mortgage example

Let’s say that you decide to get a mortgage for your future home. The term of the loan is 30 years (which is very usual for fixed-rate mortgages) and the total amount is $200,000. Since we are talking about 30 years, it will mean 360 same-amount payments during the length of your loan, plus your lender is giving you the loan with an annual interest rate of 4.5%. To find your monthly payments, you will have to divide the annual rate by 12 equal months - since the amounts you will pay are the same every month. So, you will end up paying 0.375% interest every month on the amount that you owe to the lender for the house.

 

Advantages of getting a Fixed-rate Mortgage

There are many advantages when you decide to get a Fixed-Mortgage. This is probably why they are the most popular options out of the rest of Mortgage’s types. 

Let’s take a look to the most relevant positive aspects of a fixed-rate mortgage loan:

  • PREDICTABILITY: The payment is the same each month, which allows you to design a permanent budget plan without worrying that your mortgage payments will increase in the future. 
  • ADDITIONAL PAYMENTS FLEXIBILITY: Another advantage is that most fixed mortgages allow you to make extra payment without pre paymeny penalty fees, which means that you can pay higher amounts whenever you can and your budget allows it to you. It is possible because your rate is locked-in, so you will have to estimate your interest rate to the extra amount you want to pay and your remaining principal will decrease.
  • LOWER PAYMENTS: Usually, fixed-rate mortgages allow you to have lower monthly payments in comparison to all other options, unless they are government-backed loans.
  • FLEXIBLE MORTGAGE TERM OPTIONS: Just how we mentioned above, these types of loans offer many terms so you can adapt the loan term to your payment ability and your needs. Terms go from 5 years and up to 40 years.
  • A STRESS-FREE LIFE: Most borrowers from these types of loans can have the tranquility that they will pay the same amount each month. Even though this is an advantage that affects the customer psychologically, it is important to guarantee financial health of borrowers.
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Disadvantages of getting a Fixed-rate Mortgage

It is important to also take into consideration the disadvantages of getting one of these loans in order to pick the mortgage that suits your financial situation and needs. 

Here, there are some of the main disadvantages of a fixed-rate mortgage:

  • HIGHER INTEREST RATE: Even though the monthly payments tend to be lower than other options, the interest rates are usually higher than the other options. So, it makes the loan price more expensive in an overall view of it.
  • SLOWER REPAYMENT: Since the payments are usually the same every month and the rates are higher, it is not a surprise that you will end up paying off the principal slower than with other options. Also, the first year payments cover most interests, so your principal keeps remaining for the future years, making it hard to be paid back in full within a few years, unless your budget allows it.
  • HARDER FOR BUILDING EQUITY: Since your down payments for a fixed-rate mortgage loan are lower towards the principal in comparison to the other types of mortgages, your equity will build slower.
  • MORE COMPLICATED TO QUALIFY: Since lenders will earn less money with your loan if the market rates go up, it is a big risk for them to take a long-term mortgage loan with you. This is why qualifying tends to be more complicated and also conditions for closing costs are higher than for a conventional loan.

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