A mortgage makes it possible for people without enough cash to purchase a property. Thanks to a financial institution’s assistance, buying your desired property will be less intimidating!
Any prospective homeowner will encounter varied mortgage options while on the lookout for the best ones. That is why it is only normal not to know what these different mortgage options are and how they differ. This article will talk about fixed-rate mortgages to help you determine if this is the right one for you.
Understanding Fixed-rate Mortgages: What Is It?
The fixed-rate mortgage is the most popular mortgage option chosen by the majority of borrowers. It is one of the two common types of home loans that borrowers encounter, with the other being the adjustable-rate mortgage.
When borrowers make a loan from any financial institution, the lenders will allow them to get their agreed amount of money and their agreed interest rate. Usually, the rate is determined by the loan provider, depending on certain particular factors.
The fixed-rate mortgage is as straightforward as its name suggests. The interest rate is fixed from the moment it is approved until the borrower has fully paid the loan. As soon as the interest rate was determined and locked in, it will not fluctuate with the market conditions or inflation!
On the other hand, the adjustable-rate mortgage is its exact opposite. In this setup, the interest rate is determined by numerous external factors, resulting in no definite amount to pay per month. It can go up or down depending on the current economic situation.
That is what the fixed-rate mortgage tries to avoid. Since there is a constant interest rate to adapt, the borrowers already know the amount they need to pay every month—from the beginning of their payment up until its completion. It somehow protects the borrower from unexpected or potential increases in monthly mortgage payments. It is the perfect setup for people who want predetermined expenses versus surprises.
The downside of the setup is the qualifying criteria themselves. For example, if you applied and got approved when the interest rates are high, you will be paying the high rate until you finish your contract. On the other hand, an adjustable-rate mortgage’s interest rates still have the chance to rise or fall, depending on the market performance.
The Length of Payment Term: Which Should You Avail?
This mortgage’s payment terms depend on both parties’ agreed arrangement and how long the property is amortized, but they usually last for up to 15 or 30 years.
The longer your payment term, the smaller the amount you will pay every month. However, it also means that you will pay the interest rate for a longer time. If you add up all the interest you will pay for, 30 years means more accumulated paid interest than 15 years. Choosing the 15-year setup will be less paid interest for you, but you need to pay a higher monthly payment!
The 30-year setup is best for people who cannot afford to pay a higher monthly payment. It is also ideal for people who want to have enough funds for other life emergencies. If you have the means, you can always choose the 15-year setup. You will complete your mortgage payment in a shorter period, and you will pay up less interest from your loan provider. However, you need to make sure that you can afford to pay your monthly dues in this setup!
Conclusion
If you are the type of person who never liked unpredictability, the fixed-rate mortgage is specially designed for you. It is the safest route that will not give you any financial surprises. Do your research to apply for the mortgage at the right time―when interest rates are low! That way, you can make the most out of your loan, ensuring that you don’t have to shell out more money than you have to.
Are you interested in applying for a housing loan soon? At America’s Mortgage Solutions, we are mortgage originators dedicated to helping our clients purchase their dream homes. Our goal is to minimize their tax liability while maximizing their cash flow. Contact us today at (561) 316-6800 and let us help you buy your dream home!
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