A fixed-rate mortgage is one of the ideal mortgages for most homeowners today. Why? It’s because the mortgage is predictable with an interest rate that never changes. Each month’s principal and interest payments are the same amount, enabling borrowers to plan their budget accordingly without worrying about any sudden changes that could derail their plans.
How It Works
When the loan ends, a fixed-rate mortgage means the principal and interest rates are fully paid. Every month, a part of your payment repays the interest, while the rest is for the amount you owe.
Get to Know the Fixed-Rate Mortgage Terms
If you plan to apply for a fixed-rate mortgage, you will come across a few terms that may sound unfamiliar to you. The term you choose will depend on your needs, but before you do, it’s essential you know these terms first.
- 30-year: This is perhaps the longest mortgage term you will encounter, yet it’s the most common. A 30-year term provided the lowest monthly payments.
- 15-year: This type of loan is payable within 15 years with higher monthly payments, but lower interest rates.
- 20-year: Not all lenders offer this fixed-rate mortgage term, but some do. Under this term, monthly payments are more affordable.
- 10-year: This is for borrowers who want to pay off the loan as fast as they can. Also, this comes with higher monthly payments.
Adjustable-Rate vs. Fixed-Rate Mortgages
Although most borrowers prefer a fixed-rate mortgage, it’s still not a one-size-fits-all solution. For some, an adjustable-rate mortgage may be more suitable, and they might even get a lower interest rate with a term that best suits their needs.
The main difference between adjustable-rate and fixed-rate mortgages is how interest works. Fixed-rate loans come with unchanging interest rates, while adjustable-rate resets at certain intervals over the term of the loan. In that case, it can be a good option for homebuyers with shorter-term goals. However, adjustable-rate mortgages, with their changing interest rates, may go up or down regularly.
The key to knowing how your adjustable-rate mortgage will adjust is hidden in its name. For example, a 5/1 adjustable-rate mortgage means the rate will be fixed for five years, then it will be adjusted annually. Even though adjustable-rate mortgage often starts with low-interest rates compared to fixed-rate mortgage loans, there’s always a chance that it will reset higher several times over the duration of the loan.
Which Is Better?
If you have a growing family, a thriving career, and you’re already a part of a community that you love, a fixed-rate mortgage may be the best option for you. On the other hand, adjustable-rate mortgage appeals most to first-time homebuyers due to lower rates. Therefore, if you predict you will be moving within a couple of years, or you’re thinking about starting a family, then this may be an excellent choice for you.
Get the Best Mortgage for You
Adjustable-rate and fixed-rate mortgages have their own appeals. At the end of the day, you must consider your needs and do the math to help you decide on the right mortgage for you.
Interested in fixed-rate mortgages in Louisville, KY? We can help you here! Loan Solutions Now offers a fast and streamlined mortgage process to save you money. Get started with us today!