Understanding the Basics of Fixed Rate Mortgages
A fixed rate mortgage is a loan that you would use to buy or refinance a home and it has the same interest rate from the time that the loan is originated until it is paid off. This is not a guarantee that your payment will stay the same throughout the length of the amortization period, but it is definitely not going to change drastically as it would if the loan had an adjustable rate or required balloon payments.
A fixed rate mortgage is also sometimes known as a traditional home loan, because it is the most common way to finance your home purchase. It’s the type of mortgage loan your parents probably used to buy their homes.
Within the umbrella term, a fixed rate mortgage will have different specifics that set it apart from other loans. They all have different interest rates, different amortization periods (the length of time it takes to pay off the loan at a set monthly payment) and the frequency at which interest is compounded.
When reviewing options for a fixed rate mortgage, you need to be careful to evaluate each of these specific items in order to properly determine which loan is a better deal. There are also other things to consider, such as required down payments, PMI, closing costs, etc.
Fixed rate mortgages can be borrowed with repayment periods that range between 5 years and 50 years. There are very few other loan types that will offer such a variance in the amortization periods on the purchase of a home.
The best thing about a fixed rate mortgage is that there are no teaser tactics used to attract borrowers who will use the loan to purchase a home that they cannot afford. Lenders are careful to match you with a loan and approval amount that is appropriate for your individual financial situation.
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