Fixed Rate Mortgages
Purchasing a home is an investment because of the way mortgage payments work. You pay rental fees to use the living space each month, but that money goes to the landlord. A monthly mortgage payment will build equity in the home over time, increasing the buyer’s ownership stake and potential profits. Home equity can also be used as collateral to take out other loans or refinance for better payments.
The two primary portions of a mortgage payment are principal and interest. These are calculated based on the annual percentage rate and the loan’s remaining balance. If you are considering a mortgage loan, it is important to understand what a fixed-rate mortgage is. This type of loan offers a predictable monthly payment structure and long-term stability.
A fixed-rate loan can benefit many types of homebuyers. TrueWay Mortgage is a lending firm committed to helping buyers find competitive interest rates and personalized solutions. We can help you learn more about mortgage rates, mortgage insurance, your interest rate, and whether you need homeowners insurance.
What is a Fixed-Rate Mortgage?
Fixed-rate loans are one of two primary structures for home loans, with the other being adjustable-rate loans. A fixed-rate mortgage features a locked-in interest rate that does not change for the entire loan duration. As a result, the monthly payment amount will remain the same for the life of the loan.
Conversely, an adjustable-rate mortgage includes an interest rate that can change every few years, resulting in changing monthly payments. Mortgage lenders will adjust the interest rate according to the current market, which may result in you having higher mortgage rates.
How Fixed Rate Mortgages Work
When you apply for a fixed-rate mortgage, the primary feature is an unchanging interest rate. Interest affects the cost of your monthly payment and the total amount you will pay throughout the home loan. The higher the interest rate, the more you will pay to own the home.
Many loans are eligible for mortgage points, including those backed by a central bank or Freddie Mac. You can also purchase discount points for a new loan. These discount points can help lower your interest rate. The cost tends to balance over time, so check your amortization schedule to see if this works for you.
When you lock in the interest rate, it will not change for the life of the loan, whether 15, 20, or 30 years. As a result, your mortgage rates will be consistent. This makes fixed-rate mortgages a reliable choice for many buyers, especially those who plan to live in their homes for long periods.
It’s important to compare loan offers to determine which one will work best for your situation. You can also be eligible for a fixed rate with government loans, such as FHA loans. You may be able to turn your current mortgage into a fixed rate one.
Key Features of Fixed Rate Mortgages
A fixed-rate loan offers several advantages to borrowers. Benefits of a locked rate, such as a 30 year fixed rate, include consistent monthly payment amounts, long-term mortgage options, and eligibility for various property types.
Consistent Monthly Payments
Buying a home is expensive upfront, but the actual cost will occur throughout the loan term. Depending on the loan length, you will be responsible for the monthly payment for the loan’s duration, which principal and interest determine.
Mortgage interest rates determine how much it costs to borrow the money. Your monthly payments will never change if the interest rate remains the same. This allows buyers to plan their budgets when they become homeowners. It can be a comforting prospect for first-time homebuyers.
Homebuyers can also rest assured that they already know the home's total cost. A 30 year fixed rate ensures the house’s price doesn’t go up with interest rates, letting you enjoy a higher return on investment.
Eligibility for Multiple Property Types
Some types of mortgages limit the type of property that can be purchased. Generally, fixed-rate loans are incredibly flexible, allowing borrowers to buy various properties. Whether you are interested in a primary residence, a vacation home, or an investment property, you will likely have the option of pursuing fixed mortgage rates.
Flexible Loan Terms
Flexibility is another trait that fixed-rate mortgages offer. For example, you could select various loan terms, including a 15, 20, or 30 year fixed mortgage. The longer the loan term, the lower your monthly payments will be. The ability to choose from various loan terms means more borrowers can find personalized rates and loan products that suit their financial goals.
Benefits of Fixed Rate Mortgages
Whether you apply for a 15-year or 30-year fixed-rate mortgage, these loans offer distinct advantages to borrowers. The financial predictability of payments is a primary feature because it leads to long-term affordability. It also provides insulation from real estate market fluctuations. Discuss some essential benefits of a fixed mortgage rate for your property objectives.
Ideal for Long-Term Homeowners
A fixed-interest rate mortgage suits some borrowers more than others. In particular, long-term homeowners can save a lot of money with a fixed interest rate. If you plan to live in the home for 10, 20, or 30 years, pursuing a fixed monthly payment ensures your budget is predictable for the entire loan term.
If you planned to move after a few years, an adjustable-rate loan would likely result in more savings with lower mortgage rates in the first few years. How long you plan to live in the home makes a big difference in which option is best for you. TrueWay Mortgage can help determine if a fixed lower interest rate is best for your situation.
Easier Budget Planning
Creating a budget is a crucial step for prospective homeowners. You must compare your expenses to your income, and having a new mortgage payment and utilities are significant components of that new budget. You should also consider other factors, such as homeowners insurance.
It can be hard to create an accurate budget if your monthly payment could shift from year to year. You have to pay property taxes and may have other costs like discount points. By locking in the lower interest rate on a 30 year fixed mortgage and your monthly payment, long-term planning for a budget is much simpler.
Stability Against Market Fluctuations
The housing market can be unpredictable on a macro and micro level. The state of the economy can shift, resulting in higher interest rates for a time. At the local level, market conditions could favor either buyers or sellers, which will influence mortgage rates from lenders.
If you lock in your interest payment for the entire loan term, you will be protected from changing market conditions that would typically raise your mortgage interest rates. Over time, this could save you a lot of money if mortgage rates increase.
Fixed Rate Mortgage Eligibility Requirements
Mortgage lenders assess borrowers based on their financial background. While many of these eligibility criteria are similar from lender to lender, variations are often based on local markets and individual lending firms.
You will likely encounter standards regarding your credit score, income, and down payment to qualify for a mortgage with a fixed interest rate. TrueWay Mortgage is committed to helping potential borrowers understand and meet these eligibility criteria.
Credit Score Requirements
Since a credit score reflects your credentials as a borrower, most lenders require a minimum score to qualify for certain loans. The standard credit score requirement for a conventional fixed-interest rate loan is 620.
Exceptions could be made for lower scores, especially for other loan programs like Federal Housing Administration (FHA) mortgages. Similarly, different lenders may require higher scores of 640 or more to qualify for a fixed-rate home loan.
Down Payment Options
Borrowers who qualify for fixed mortgage rate loans must also meet specific down payment requirements. The typical minimum down payment for a 30-year fixed-rate home loan is 3% of the home’s purchase price. Many lenders will not accept less than 10%.
You should shoot for a 20% down payment to avoid paying private mortgage insurance premiums. However, in terms of qualification, even a low down payment can result in loan eligibility if your other finances are in order.
Income and Debt-to-Income Ratio
Income requirements vary widely from lender to lender. As long as a borrower can prove they can afford the upfront expenses and monthly payments comfortably, most lenders will consider approving them for loans.
One metric the lender will consider is your debt-to-income ratio. This is calculated by dividing your monthly debt obligations by your monthly income and multiplying the result by 100 to get a percentage. Lenders typically prefer a maximum DTI ratio of 43% to be considered for a fixed-rate mortgage. However, it is not unusual for lenders to require maximum ratios of 36%.
TrueWay Mortgage will provide guidance in meeting these standards and understanding your options if your income is limited.
Fixed Rate Mortgages for First-Time Homebuyers
First-time homebuyers often prefer the stability of consistent mortgage rates. It can provide security and predictability for borrowers who are becoming homeowners for the first time. TrueWay Mortgage can support you as you consider your options and achieve your dreams of becoming a homeowner.
Comparing Fixed Rate Mortgages to Adjustable Rate Mortgages
Since the two main mortgage options are fixed-rate and adjustable-rate, it is worth comparing them. A fixed loan is more stable, but adjustable rates offer greater flexibility for borrowers. Let’s compare some of the features of these loans.
Fixed vs. Adjustable Interest Rates
A fixed interest rate means your monthly payment remains unchanged throughout the loan. This ensures financial stability for the borrower. An adjustable mortgage is at the mercy of rate adjustments, which depend on the housing market and the lender. Typically, there is an initial specified period with a locked-in rate, which will change every one, three, or five years.
Cost Differences Over Time
Fixed-rate mortgages result in long-term savings for owners who occupy their homes for long periods. However, an adjustable-rate loan can have short-term savings for specific borrowers. Plus, if the market is favorable, rate adjustments could lead to lower mortgage rates, resulting in more savings.
Meanwhile, the risk of rising mortgage rates may be too significant for long-term borrowers. Adjustable mortgages may be favorable if you plan to occupy the home for a short time. Otherwise, a fixed-rate home loan is safer.
Loan Term Options for Fixed Rate Mortgages
As mortgage rates affect your monthly mortgage payment, so does the loan term. The most common loan terms for fixed-interest mortgages are 15, 20, and 30 years. With shorter loan terms, you can build equity quickly through higher payments. Longer terms will spread the costs out and give you a lower payment each month.
15-Year Fixed Rate Mortgage
The shorter your home loan lasts, the less you will pay overall interest. While the monthly payments will be significantly higher, you can save money in the long run by paying off the loan sooner since interest accrues over time. The higher principal payments will help you gain equity faster, paving the way for the investment to pay off if you sell or refinance.
30-Year Fixed Rate Mortgage
Many buyers buy homes when they can afford the upfront expenses, such as the down payment and closing costs. The mortgage payment is often comparable to rent, but only if those premiums are kept low. The best way to keep your payments low is to spread out the costs of the loan over the entire term, such as 30 years.
Why Choose TrueWay Mortgage for Fixed Rate Mortgages?
When you start exploring mortgage options, you need a trusted lending partner to provide guidance. TrueWay Mortgage has the experience necessary to provide sound advice and a personalized approach for each borrower. We understand that everyone has different needs, so we work to understand your financial objectives before recommending a tailored solution.
Contact Sam and Anisha Mauldin
TrueWay Mortgage
Start Your Fixed Rate Mortgage Journey Today
If you are ready to start your fixed-rate mortgage journey, TrueWay Mortgage can help. Check out our quick quote tool to compare current mortgage rates. Then, give us a call at 404-962-0032 for a free consultation.