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An Overview of Fixed Rate Mortgage

As the name suggests, in a fixed rate mortgage, the interest rates are fixed for the duration of the loan, and cannot be changed. This means that a borrower’s interest rate on the loan that he or she has borrowed does not change during the entire term of the mortgage; this is why it is called fixed interest rate mortgage.

These are the most popular type of mortgages as you can have a fixed rate for even a loan that stretches for long period of time. So, you have 30 year fixed rate mortgage or even a 10 year fixed rate mortgage. Almost 75% of all home mortgages fall under this category.

The Benefits of a Fixed Rate Mortgage

One of the biggest benefits of fixed rate mortgage is that you are very clear as to what your monthly payments are going to be. If you know the amount of fixed interest rate mortgage and the principal payments then you can plan your monthly or yearly budget in a better manner.

Also because it is a fixed rate mortgage loan, you basically know and are secure in the fact that the interest rate will never change for the duration of the loan no matter what the market fluctuations in the interest rate.

Suppose you go for a 30 year fixed rate mortgage at an interest rate of 8%. Over the course of time even if the rate of interest increases to 10%, your interest remains the same. On the other hand even if the interest rate falls to around 6%, you still pay 8% interest.

Fixed Rate Mortgage – Characteristics

There are many beneficial characteristics of a fixed rate loan that might be beneficial to the borrower. Some of them are given below:

»  Its pretty simple to understand as compared to adjustable rate mortgage
»  There is more buyer security and thus it’s very common to find a first time home buyer going     for a fixed rate mortgage loan.
»  If you are one of those people who want to stick to the monthly budget at all cost and likes     to plan ahead, then a fixed rate mortgage is tailor made for your needs and demands.
»  The initial payments are slightly higher than those in adjustable rate mortgages.
»  There is very little flexibility when it comes to fixed rate mortgage.

In the end most people choose to go for a fixed rate loan because there is a stability factor associated with it. You know what you are getting into and what you are getting out of it. You can plan accordingly and save accordingly. Moreover, the time frame for repayment of the loan can be stretched to maximum and in accordance with your capacity to pay. Therefore there are people who choose to go for a 15 year fixed rate mortgage, while there are still others who go for a lesser time frame.

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