Types of Home Loans, Fixed Rate Mortgage
A Fixed Rate Mortgage features principal and interest payments that remain constant throughout the life of the home loan. The interest rate and other terms are fixed and do not change. Among other factors, the interest rate on this type of mortgage does not change but it is important to consider the term of the loan.
The shorter the term, the faster equity can be built. In contrast, the longer the term, the lower monthly payments will be. To determine if a Fixed Rate Mortgage is right for you, please consider the pros and cons:
Fixed Rate Loans Pros
- Consistent interest rate and monthly payments. Payments may change based on escrow changes for property taxes and insurance.
- Choice of term options, including 10, 15, 20, 25, and 30 year options.
- A good choice for people who will own their home long-term.
- A good choice for people who want to minimize risk.
Fixed Rate Loans Cons
- May not be a good choice when expected time of home ownership is short.
- Higher rate compared to Adjustable Rate Mortgage, because the lender guarantees the rate longer.
- May not be a good choice for clients with a tolerance for risk, who believe rates will be lower in the future.