Fixed-Rate Mortgages

Buying a home can be a lengthy — and at times, overwhelming — process. Particularly if you are a first-time homebuyer, you may be wondering whether a fixed rate or an adjustable-rate mortgage is the best choice for you.

Read on for an in-depth look at fixed-rate mortgages, their benefits, terms, requirements, and qualifications.

What are Fixed-Rate Mortgages?

A fixed-rate mortgage is just what it sounds like — a mortgage that charges a set rate of interest throughout the life of the loan.

Given their unchanging nature, fixed-rate mortgages have the reputation of being less complex than adjustable-rate mortgages. However, while the total payment for a fixed-rate mortgage remains the same from month to month, the amount of principal and interest can vary.

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Fixed-Rate Mortgage Benefits

There are several advantages to choosing a fixed-rate mortgage. Some of the most prominent benefits of fixed-rate mortgage loans are their relative simplicity, reliability of rates and a myriad of refinancing options. Each of these benefits can help make the homebuying process less stressful. Check out the following benefits to learn why fixed-rate mortgage loans are a popular choice for many homebuyers today.

Conventional Loan Type

Many homebuyers opt for a fixed-rate mortgage simply because it is one of the most common types of mortgage. They are relatively straightforward and easy to understand, which can make the homebuying process less daunting. There are also fewer hoops to jump through when it comes to obtaining a fixed-rate mortgage. As long as you qualify, a fixed-rate mortgage is not very difficult to secure. For this reason, many prospective buyers choose a fixed-rate mortgage over an adjustable-rate mortgage.

Interest Rates Won't Change

Another significant benefit of fixed-rate mortgage loans is their stability. Because this type of mortgage is guaranteed to stay the same over the entire life of the loan, buyers don’t have the risk of their mortgage spiking several years into the loan. This reliability takes away the fear that each month’s mortgage will continue to climb without an end in sight.

Moreover, the consistent nature of a fixed-rate mortgage allows buyers to establish and stick to a budget more easily than with an adjustable-rate mortgage. This ability to structure finances around an unchanging mortgage can prove highly beneficial for years to come. Keep in mind that it’s always a good idea to lock in your interest rates to avoid unexpected rate increases that throw your budget off course.

Refinancing Options

Last but certainly not least, a fixed-rate mortgage is a desirable option because it can simplify refinancing. While you may be satisfied with your mortgage payment and interest rate when you first purchase your home, it’s important to consider the possibility of refinancing down the road.

If interest rates drop a year or more after buying your home, you may want to think about refinancing your mortgage. Doing so could significantly decrease your monthly payments and save you money in the long run. With a fixed-rate mortgage, refinancing is simple and could lock you in with a better rate and monthly payment.

How Long Are Fixed-Rate Mortgage Terms?

When choosing which mortgage is right for you, consider how long you’ll be paying off your loan. The term of the loan — or the length of time it will take to pay it off — depends on your financial situation and how motivated you are to pay off the loan. Typically, buyers with a fixed-rate mortgage have the choice between a 15-year fixed loan or a 30-year fixed loan. However, some lenders offer different loan terms.

30-Year Fixed

A 30-year fixed mortgage is the most common option for home buyers. This mortgage’s term length allows buyers to have less expensive monthly payments than with a 15-year mortgage. A 30-year fixed mortgage is best suited for buyers who don’t expect to move anytime soon.

30-year mortgages allow buyers to build up their savings, retirement funds or children’s education funds. What is more, buyers with a 30-year fixed mortgage can elect to pay extra each month to reduce the principal on their loan.

15-Year Fixed

15-year fixed mortgage, on the other hand, is a terrific option for buyers who want to pay off their loans quickly. Buyers can also save money in the long run and enjoy lower interest rates with a 15-year fixed mortgage. From the beginning of the loan, less money is spent on interest than with 30-year fixed mortgages. Instead, payments significantly reduce the principal each month.

That being said, it’s important to recognize that 15-year fixed mortgages come with higher monthly payments than 30-year fixed mortgages. For this reason, it’s not always the best choice for buyers who want to utilize their funds elsewhere while continuing to pay off their loans.

Other Fixed-Rate Mortgage Terms

While 15- and 30-year fixed mortgages are the most popular choices among home buyers, they are not the only two options. Capital Bank offers a 10, 20, and 25-year fixed-rate mortgage and something called a “variable rate mortgage.”

A variable rate mortgage fluctuates based on current interest rates. To this end, they can increase as rates rise and decrease as rates drop. This mortgage can generally be locked in after five to seven years. Therefore, they are an ideal choice when interest rates are falling.

Conventional Loan Requirements and Qualifications

Any potential home buyer knows that purchasing a home doesn’t happen overnight. There are several loan requirements and qualifications that must be met in order to be approved. While these criteria may seem restrictive, they are meant to ensure that you’ll be able to make your mortgage payments over the life of the loan. The following information directly contributes to potential buyers’ ability to be approved for a loan.

It may seem obvious, but the first piece of information that your lender needs to determine before you can be approved for a loan is the loan amount. Your debt-to-income ratio is one of the main factors that will determine how much money you can borrow.

This figure is calculated by dividing the buyer’s monthly gross income by their amount of debt. Generally, a 41% or lower debt-to-income ratio is desirable. Keep in mind that all lenders will include the potential mortgage when calculating the debt-to-income ratio.

Is a Fixed-Rate Mortgage Right For You?

All things considered, a fixed-rate mortgage could be the right choice for you if you are seeking a consistent, secure mortgage loan. Options range from lender to lender, but the most common fixed-rate loans are 15- and 30-year mortgages.

Capital Bank even offers a 10, 20, and 25-year fixed-rate mortgage and a variable-rate mortgage loan. By considering how quickly you’d like to pay off your mortgage — and at what interest rate — you can determine whether or not a fixed-rate mortgage loan is right for you.

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