Fixed-Rate Mortgages

Fixed-rate mortgages are the most common mortgage for many homebuyers because the monthly payments are stable. The interest rate you lock-in will be the same interest rate you pay for the life of the loan - whether it's a 15-year, 20-year, 30-year or 40-year mortgage.

What are the benefits of a fixed-rate mortgage?

  • Inflation protection.
    If interest rates increase, your mortgage and your mortgage payment won't be significantly affected. Even if your taxes or insurance costs go up over time, your basic loan payment (principal and interest) will stay the same. This is especially helpful if you plan to own your home for five or more years.
  • Long-term planning.
    You know what your monthly housing expense will be for the entire term of your mortgage. This can help you plan for other expenses and set long-term financial goals for yourself and your family.
  • Low risk.
    You always know what your payment will be, regardless of what current interest rates are. This is why fixed-rate mortgages are so popular with first-time buyers.

There are additional considerations to be aware of with fixed-rate mortgages:

  • Your mortgage interest rate won't go down, even if interest rates drop, unless you refinance your mortgage.
  • Because the interest rate is generally higher than other types of mortgage loans, you may not be able to qualify for as large a loan with a fixed-rate mortgage.
  • Your total monthly payment can occasionally increase based on changes to your taxes and insurance. In many cases you pay these costs through an escrow account that your lender keeps for you.

Interest Only Fixed-Rate Mortgages

If you choose an interest-only option for a fixed-rate mortgage, the term of the loan is divided into two periods. During the first period, your monthly payment is lower because you pay only interest and no principal. In the second period, you pay both. For example, on a 30-year fixed rate mortgage, you might make interest-only payments for the first 15 years, and then pay both principal and interest for the remaining 15 years.

Interest-only loans can free up cash for other purposes during the initial period of the loan, but when you begin paying both principal and interest your monthly payments will be larger.

As with all interest-only mortgages, interest-only fixed-rate mortgages are not for all borrowers, and should be offered appropriately only to borrowers who clearly understand and qualify for the potential payment increases.

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