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Fixed Rate Mortgage

How do they work?

The most common type of mortgage program where your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable. Fixed-rate mortgages are available for 30 years, 25 years,  20 years, 15 years and even 10 years.

What are the benefits of a Fixed-Rate Loan?
With a Fixed-Rate Loan, you’ll have one interest rate for the life of the loan. This means your payment will always stay the same, even if interest rates go up.

Should I Choose a fixed rate mortgage?

Granted fixed loans are the most popular and most stable when rates are concerned but are they the right loan for you. Lets take a look at a scenario where a fixed rate mortgage is NOT the borrowers best choice.

Jim and Jane are recently married with no children at this time, they plan on building a family later on. They have found a great 2 bedroom starter home that they like and have signed a contract. The couples plan is to stay in the home for 6-7 years while they build a family.

If you know that you will be in a home for a short period of time then a long term mortgage is not your best choice, why have a mortgage for thirty years when you will be there for only 5? In a situation similar to this, you should consider an ARM. The types of adjustable rate mortgages that will work in this situation are  a group know as 3/1 Arm, 5/1 Arm and a 7/1. These loans are fixed for a specific period of time such as 3, 5 or 7 years after that period the loan becomes adjustable. The interest rate on these loans are significantly lower than a fixed rate mortgage.