What is a Fixed Rate Mortgage?
A fixed rate mortgage is a mortgage in which the interest rate, as well as principal and interest payments, are set for the term of the loan. This offers borrowers stability over the term of the loan, knowing that the amount they pay each month will not change over time.
A typical fixed rate mortgage is 30 years long, but 20-, 15- and 10-year terms are also common. At BrightPath, borrowers can even choose the length of the term on their fixed rate mortgage.
Why a Fixed Rate Mortgage?
The main advantage to a fixed rate mortgage is that borrowers do not have to worry about fluctuating mortgage payments. If interest rates go up, borrowers’ payments stay the same, so budgeting is made easier.
When interest rates are higher, the amount you may qualify to borrow will be less under a fixed rate mortgage than under an adjustable rate mortgage. Often adjustable rate mortgages (ARMs) may offer an initial lower interest rate than a fixed rate mortgage. The trade-off is that ARMs may adjust upward over time, leaving borrowers facing growing payments.
Fixed rate mortgages are ideal for borrowers who plan to live in their home for a long time or use it as a long-term investment.
Choosing a Loan Term
Choosing a term for a fixed rate mortgage can have an effect on monthly payments and interest paid over the term of the mortgage. The shorter the term, the less interest paid over the life of the loan, but monthly payments will be higher. While the lower monthly payment offered by a longer-term mortgage can help homeowners maintain liquidity, their home equity will increase more slowly than if they had chosen a shorter term. The amount of interest paid on a loan with a longer term can also be much higher than what would be paid on a loan with a shorter duration. That’s because there is a decade or more of extra interest payments made.
The most popular term for fixed rate mortgages is a 30-year loan. That’s because the longer loan term means that monthly payments are lower, and therefore more affordable
If you would like to explore fixed rate mortgages or other mortgage products available from BrightPath, please call us at 888-222-6003, or complete our simple form below. One of our experienced mortgage specialists will contact you.