What Is A Fixed Rate Mortgage?
As its name implies, a fixed rate mortgage is one where the interest rate on your home loan remains the same throughout its duration. This differs from a loan where the interest rate may change over time, such as an adjustable rate mortgage. Fixed rate mortgages are the most popular form of home loan in the United States, largely due to the appeal of a consistent mortgage payment amount over the life of the loan.
In many instances, fixed rate mortgages have higher payments than adjustable rate mortgages. This is most often because the interest rate remains unchanged for the duration of the loan. Typically, loans with longer terms will have higher interest rates than loans with shorter terms due to interest rate risk (the possibility of interest rates fluctuating over the term of the loan).
Fixed Rate Mortgage Benefits
The biggest benefit of a fixed rate mortgage is the fact that the interest rate will not change over time. Your interest rate and principal payment will be locked in for the entire life of your loan. They will never increase, even if the market rates change. This gives you peace of mind and allows you to budget your finances for a consistent, fixed payment over the duration of your loan.
Other benefits include:
- Competitive interest rates
- Easier-to-understand loan terms and paperwork
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