Your Guide to
Fixed-Rate Mortgage
A Fixed-Rate Mortgage is a home loan with an Interest Rate that stays the same for the life of the loan. This results in a consistent monthly payment for Principal and Interest.
A Fixed-Rate Mortgage (FRM) is a reliable and popular choice for homebuyers, offering predictable monthly payments and long-term stability. In this guide, we’ll explore the different types of FRMs, how they work, who qualifies, and the key benefits they provide to help you make an informed decision.
Understanding Fixed-Rate Mortgages:
A Fixed-Rate Mortgage is the most common form of a home loan. This provides the
greatest form of stability and comfort for knowing what your future Principal and Interest
payment will be. A Fixed-Rate Mortgage is available with different amortization periods, or
simply put, the number of months that you will have to pay for the loan. The shorter the Amortization period, the higher the payment. The longer the Amortization period, the lower the payment.
Types of Fixed-Rate Mortgages:
Amortization Terms: 10 – 30 years:
Down Payment Options: As low as 3% to 5%.
Eligibility Criteria:
Minimum 3% down payment for low-balance loan amounts.
Minimum 5% down payment for high-balance loan amounts.
Minimum credit score of 620.
For those wanting to build their equity at a more rapid pace, look for a shorter Amortization term.
Your Interest Rate remains the same which mean your monthly Principal and Interest payment remains the same.
You won’t have to adjust your budget as your monthly payment will not adjust.
Eligibility Criteria for Fixed-Rate Mortgages:
Verifiable employment history is required.
Future consistency of earnings is expected.
A minimum credit score of 620 or higher.
Each program has minimum down payment requirements starting at 3%. Variables can contribute to the need for a larger down payment.
Comparing 30-Year and 15-Year Fixed-Rate Mortgages:
The Shorter the loan amortizing term, the sooner the loan balance is -0-. That said, a
shorter amortization term has a larger payment. The benefit of a shorter term is that
equity is built up sooner. If you want more of an interest write off from the property, a longer term is more beneficial.
What is the difference between a Fixed-Rate Mortgage and an Adjustable-Rate Mortgage?
An Adjustable Rate Mortgage has payments that may fluctuate as they are based on
an interest rate driven by economic circumstances. For stability with your housing payment, a Fixed-Rate Mortgage is ideal.
2. For those wanting to build their equity at a more rapid pace, look for a shorter Amortization term:
Suited for individuals aiming to pay off their mortgage rapidly and save on interest. Preferred by homeowners looking to build equity swiftly.
Interest Rate: Generally lower than 30-Year FRM.
Monthly Payments: Higher due to shorter repayment period.
Eligibility Criteria:
Suitable for those aiming for faster mortgage payoff.
Ideal for building equity quickly.
Requires higher monthly payments.
Comparing 30-Year and 15-Year Fixed-Rate Mortgages:
The Shorter the loan amortizing term, the sooner the loan balance is -0-. That said, a shorter amortization term has a larger payment. The benefit of a shorter term is that
equity is built up sooner. If you want more of an interest write off from the property, a longer term is more beneficial.
Advantages of Fixed-Rate Mortgages:
Predictable Monthly Payments: Consistent payments over the loan term provide financial stability.
Equity Growth: Monthly payments contribute to equity accumulation.
Hedge Against Inflation: Fixed payments protect against cost-of-living increases.
Is a 30-Year Fixed-Rate Loan Better than a 15-Year Option?
While a 15-year fixed-rate mortgage accrues less overall interest, the 30-year option offers lower monthly payments, providing more liquidity and flexibility. Buyers can consider investing the savings from the lower monthly payment for potential returns, making the 30-year option an attractive choice.
What is the difference between a Fixed-Rate Mortgage and an Adjustable-Rate Mortgage?
An Adjustable Rate Mortgage has payments that may fluctuate as they are based on
an interest rate driven by economic circumstances. For stability with your housing
payment, a Fixed-Rate Mortgage is ideal.
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A Fixed-Rate Mortgage is a home loan with an Interest Rate that stays the same for the life of the loan. This results in a consistent monthly payment for Principal and Interest.
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