To choose the right mortgage loan, it’s important to understand the “fixed rate mortgage” definition. This type of loan has several advantages, including predictable monthly payments and long repayment terms. However, a fixed rate mortgage might not be right for everyone.
Here is a quick guide to understanding this type of mortgage:
Fixed-rate mortgages vs. adjustable-rate mortgages
When comparing mortgages, you’ll encounter fixed rate mortgages and adjustable rate mortgages. As the name suggests, the interest rate of an ARM adjusts with market fluctuations, but the loans are offered at low introductory rates for a limited time period.
ARMs usually have introductory rates lasting anywhere from one to five years. Once the introductory period ends, your interest rate will increase with a cap of to 2% per year, or 5% over the lifetime of the loan.
Compared to fixed rate mortgages, ARMs are more complex loan programs and typically better for borrowers who have less intention of staying in the same home for an extended period of time.
Pros & cons of a fixed-rate mortgage
Fixed-rate loans are incredibly affordable because of the predictable nature of their repayments. While the homeowners coverage and taxes may vary, your mortgage payment will remain the same. This affects your budget for the rest of your month, and plays a major part in your financial planning.
Besides reducing the risk of default on fixed-rate loans, your loan rate remains constant. Whatever your rate is, the amount you paid will remain unchanged when you took the loan. Often, these rates are higher than they would be for an ARM.
How long does it take to repay a fixed-rate mortgage?
Fixed-rate mortgages can be repaid during a predetermined amount of time. They are usually offered as 30-year home loans, giving you a maximum of 30 years to pay the full amount.
This may seem like a long time, but the extended timeline is one thing that ensures a lower monthly mortgage payment.
There are other options available, such as a 15-year mortgage. These can work well if the borrower has sufficient cash to pay the loan more quickly while still taking advantage of the fixed interest rate.
About the Author
Ryan Mandigo
Ryan Mandigo is an award-winning professional broker associate with Omni Real Estate. Originally a native of New Hampshire, his love of real estate began 30+ years ago while swinging a hammer on a framing crew. He has always had a strong passion for helping people, whether it be assisting a couple in purchasing their first home, finding a home that fits a growing family's needs, or downsizing for those with an empty nest. He strives to build strong personal and professional relationships with being a true believer in the power of positive thinking and always willing to lend a helping hand.
He is also a co-founder and board member of the Swing Fore the Kids organization. A local charity that is 100% nonprofit and their sole purpose is to help needy children and young adults within Horry County communities. He finds great satisfaction and pleasure in seeing how working hard for a great cause and raising funds can help others in need. He is also on the Board of Directors for the Waccamaw Youth Center in Conway, where their mission is to provide at-risk youth "A Place To Call Home"
When he is not working, he enjoys music, working around the home, spending time with family and friends, turning wrenches on vintage vehicles, getting some wind therapy on the Harley or chilling with their dogs.
Some quotes he lives by - "Do what you like and like what you do" - "You have to be odd to be number one" - "Dreams don't work unless you do" And one of his favorites. "Positive and enthusiastic thinking in all you do"
