Fixed Rate Mortgage

Fixed rate mortgages are among the most common home loans used to purchase primary and secondary residences. While there are other financing options available to homebuyers, many prefer a fixed rate mortgage because these loans offer long-term predictability for the length of their term and multiple financing options.

Fixed Rate Mortgages Have a Set Interest Rate

Fixed rate mortgages are defined by their interest rate. Regardless of what other options these loans might or might not have, they all come with a set interest rate that doesn’t change for the duration of the loan.

The rate is based on multiple factors (e.g., type of loan, current market rates, credit score, etc.) and may fall anywhere within the current range of mortgage interest rates at the time of signing. Once set, however, a fixed rate mortgage interest rate remains the same from the time of signing until the final payment is made.

(If homeowners refinance, they’ll likely receive a new interest rate, but this isn’t because the terms of the fixed rate mortgage changed. Instead, refinancing involves replacing a current mortgage with a different one that’s written with its own terms and interest rate.)

Fixed Rate Mortgages Are Different From Adjustable Rate Mortgages

The set interest rate that fixed rate mortgages come with distinguishes these loans from adjustable rate mortgages, which are also used to finance primary and secondary home purchases. These latter mortgages are commonly called “ARMs.”

Adjustable rate mortgages are so-named because they have an interest rate that changes — or adjusts — throughout the duration of the loan. An ARM might come with a set interest rate for an initial period of time, such as three or five years, but then the rate can usually go up or down, depending on how going market rates fluctuate for the remainder of the loan.

For example, a “5/1 ARM” is a common adjustable rate mortgage. With this arrangement, the interest rate is fixed for five years but then can adjust once per year thereafter. If the market rates go up during the term of the loan, so too will the loan’s rate.

If a homebuyer took out a fixed rate mortgage, future market rates aren’t a concern because the mortgage’s rate will remain unchanged.

A Set Interest Rate Provides Long-Term Reliability

Fixed rate mortgages typically come with slightly higher interest rates than adjustable-rate mortgages, but getting a set interest rate is a wise trade-off for most homebuyers. The non-changing interest rate effectively acts as an insurance policy against potentially higher future interest rates, and it affords a level of long-term reliability that no ARM can provide.

With a fixed rate mortgage, homeowners know exactly how much they’ll pay in interest for the duration of their mortgage, and they know how much their monthly mortgage payment will be. This makes both long-term financial planning and monthly budgeting simple and easy. (Changes in property taxes and homeowners’ insurance rates can affect monthly payments a little, but these changes are nominal compared to the total paid on a mortgage, and they’re in addition to any mortgage.)

Most importantly, having a set interest rate ensures that future rising interest rates won’t become too expensive for homeowners and force them out of their beloved residences. With ARMs, there’s always at least some risk that interest rates will rise so much that a homeowner can no longer afford to make their monthly payment.

Many Financing Options Are Available Through Fixed Rate Mortgages

Because fixed rate mortgages are some of the most popular types of home loans, there are many financing options available through them.

Many lenders offer 10-, 15-, 30- and 40-year fixed rate mortgages, and other lengths are also available. The 15- and 30-year terms are usually the most suitable choices, with the 15-year making it possible to build equity faster and the 30-year letting homebuyers borrow substantially more money.

Moreover, fixed rate mortgages are widely available through various mortgage options. Conventional mortgages, jumbo mortgages (for expensive homes), FHA mortgages, USDA mortgages (for low-income, rural residents) and VA mortgages (for veterans) all offer fixed rate options.

Secure a Fixed Rate Mortgage to Purchase Your Next Home

If you’re in the process of purchasing a new home, find out what fixed rate mortgage options are available to you. With one of these mortgages, you’ll have the funds needed to purchase your next house and the predictability necessary to enjoy it without financial worry for a long time to come. Contact us today to find which loan program is right for you.