Buying a home can be both exhilarating and intimidating. You’ve finally found that perfect property — but now you have to figure out the best way to pay for it.
The vast majority of home buyers secure a mortgage from a bank or lender to help them pay for their home. A mortgage is a loan used for purchasing a home or property. It’s a wise idea to pre-qualify for a mortgage as this process also gives you an estimate of how much you can afford while improving your chances of securing a home when making an offer.
Once you’ve prequalified for a mortgage, the next step is choosing which type of mortgage will work best for you based on your income, lifestyle, and future plans. While there are several mortgage types to choose from, a fixed-rate mortgage is a popular option thanks to its stability, ease of payment, and more.
Read on to learn if a fixed-rate mortgage is right for you.
What Is a Fixed-rate Mortgage?
A fixed-rate mortgage is a type of loan used to finance the purchase of a home. This type of loan offers a simple-interest, amortizing loan, in which the interest rate is “locked in,” meaning the buyer will have a fixed monthly installment principal and interest payment for the duration of the mortgage.
Generally speaking, the shorter the length of a fixed-rate loan, the lower the interest rate will be. However, short-term loans will have higher payments overall. For example, a 15-year interest rate is typically lower than a 30-year fixed interest rate, however the 15-year mortgage payment will be more than the 30-year term.
What Are the Benefits of a Fixed-Rate Mortgage?
Depending on your situation, a fixed-rate mortgage could be right for you, as it offers:
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Predictable monthly payments. Whether you choose a 10- 15-, or 30- year mortgage, your monthly payments will not change (barring any property tax or homeowners insurance changes). This means you can more easily work your mortgage into your budget, knowing that your house payment will remain consistent.
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No impact from fluctuating markets. Your mortgage rate will not be affected by the ever-changing shift in the housing marketing and associated interest rates. Whatever rate you receive from your bank will be the rate for the length of your mortgage terms.
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Easier to compare. Knowing your interest rate won’t change makes it easier to shop around for a competitive rate.
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No prepayment penalty. With a fixed-rate mortgage, many financial lenders, like USB, will not penalize you for pre-paying on your home, which means you can pay extra on the principal if you choose to do so.
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Lower down payments. Some lenders will allow for smaller down payments, dependent on your credit score and loan type.
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Choose your term. Whether this is your first home or your fifth, with a fixed-rate mortgage, home buyers are able to choose a mortgage term that helps meet their financial goals.
Can You Refinance a Fixed-Rate Mortgage?
Refinancing a mortgage involves replacing the mortgage you have with another one that suits your current needs. Homeowners typically refinance because they want to secure a lower interest rate or change the terms of their loan.
If you currently have a fixed-rate mortgage but want to see if you qualify for a lower interest rate or want to switch the terms of your loan, first compare the rates of your current lender with those of other mortgage lenders to see which one best suits your needs. Then contact the lender of your choosing to start the process.
Keep in mind there are some other factors to consider when refinancing, including closing costs, your credit score, your home’s equity, and more.
Is a Fixed-Rate Mortgage Right for You?
If you’re looking for the peace of mind and stability that comes with knowing your mortgage payment will be the same every month, then a fixed-rate mortgage could be a great option for you.
If you’re ready to see if you qualify for a fixed-rate mortgage with a low-rate company or for answers to other home-buying questions, contact the experts at Union Savings Bank loan office today!