Fixed-rate Loan

Fixed-rate Loan


 

There are many types of home loans, although fixed-rate loans remain the most popular option for homebuyers. Most fixed loans have a 15-year to 30-year term. Also known as conventional loans, fixed-rate mortgages have been around longer than any other loan option.

You may choose a fixed-rate mortgage if:

  • You want the security of a mortgage payment that never changes
  • Mortgage rates are currently low

Each mortgage payment will be equal to your interest rate times the principal on your loan, plus a percentage of principal. At the beginning of your mortgage, most of your mortgage payments will go toward interest, while most payments will go toward principal toward the end.

Fixed Rate Mortgages

15-Year or 30-Year Fixed Loan?

You will need to choose between a 15-year and a 30-year fixed-rate mortgage, each with advantages and drawbacks.

A 30-year mortgage allows you to borrow money for the long-term without risking higher interest rates or changing payments. Your payments will be lower than a 15-year mortgage, and your interest payments will be higher, so you can deduct more interest on your taxes. You will build equity slower than with a shorter-term loan, however, and you will pay more in interest. The interest rate will also be higher.

A 15-year loan will allow you to build equity faster with a lower interest rate and less in interest charges. The monthly mortgage payment will be higher, however.

Fixed Rate Loans

Is a Fixed-rate Loan the Right Choice?

While mortgage rates remain at historic lows, it typically makes sense to choose a fixed loan. Fixed-rate mortgages are usually the better deal when rates are low, even if you will stay in your home for a short time. This is especially true if you want the security of the same payment and interest rate, and you are willing to pay more in interest.

You can use a mortgage calculator to compare the costs of a fixed versus an adjustable-rate loan to decide which makes more sense for you.

Conventional Loans

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