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What is a fixed-rate mortgage?

With this kind of home loan, your rate never changes

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There are several mortgage products available to homebuyers, but we can group most of them into two broad categories: fixed-rate mortgages and adjustable-rate mortgages.

An adjustable-rate mortgage (ARM) has an interest rate that fluctuates based on a benchmark interest rate that changes with the market and a margin amount that’s set in your loan agreement.

On the other hand, a fixed-rate mortgage has one interest rate that never changes — this appeals to many borrowers because of the simplicity and predictability.

How fixed-rate mortgages work

Unlike ARMs, fixed-rate mortgages come with one unchanging interest rate. Once you sign the loan agreement, you keep that same rate until you pay off the loan or refinance with a new mortgage loan. You’ll pay off the mortgage through fixed monthly payments of principal, interest taxes and insurance.

The lender calculates an amortization schedule ahead of time to build the interest into your payments. During amortization, your payment stays the same from month to month, but the amounts going toward principal and interest differ.

Early on in the loan term, because there’s a larger balance, more of each payment is going toward interest. However, as you continue to make payments, there’s less principal to charge interest on. As a result, these payments are eventually made up of more principal than interest.

Should I get a short-term fixed-rate mortgage?

Fixed-rate mortgages tend to come with terms of 15, 20 or 30 years. There are also 10-year mortgage options, but they’re not common.

Ultimately, the shorter the term, the higher the monthly payments — but the faster you pay the loan off. That said, the 30-year option is by far the most popular for cash flow reasons. Interest rates tend to be higher with this option, but the monthly payment is much more affordable since the loan amount to be repaid is spread over more time.

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    Fixed-rate mortgage FAQ

    What are the advantages of a fixed-rate mortgage?

    Here are some upsides to buying your home with a fixed-rate mortgage:

    • Lock in your rate: If prevailing interest rates are low overall, you can lock in a great rate. This protects you in case rates rise later.
    • Predictable payments: Fixed-rate mortgage payments are the same every month. It’s much easier to budget for your mortgage this way.
    • Lots of options: You can get a conventional fixed-rate loan or government-backed fixed-rate loan insured by the FHA, VA or USDA.
    • Flexibility: You can make only your minimum monthly payment, or you can pay more and potentially pay the loan off faster.
    How can I check current mortgage rates?

    Many banks and other lenders have tools on their websites that show regularly updated current mortgage rates. Comparison sites may have similar information available.

    What is a conforming fixed loan?

    A conforming fixed loan is any fixed-rate mortgage loan with an origination balance that falls below the dollar amount set each year by the Federal Housing Finance Agency. These loans must also meet guidelines from Fannie Mae and Freddie Mac, government-sponsored enterprises that guarantee most mortgages in the U.S.

    Bottom line: Should I get a fixed- or adjustable-rate mortgage?

    Fixed-rate loans can be excellent options for homebuyers who want a predictable monthly payment with an interest rate that stays the same over time. This is especially true when rates are low — locking in a rate in a low-interest environment protects you from future increases.

    However, if rates are higher, fixed-rate mortgages sometimes aren’t a great idea. An adjustable-rate mortgage has a lower starting interest rate to start during the initial fixed period, so it’s also a good idea if you don’t plan on staying in the home long term.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Consumer Financial Protection Bureau, “Understand loan options.” Accessed Nov. 23, 2021.
    2. Federal Housing Finance Agency, “Conforming Loan Limits.” Accessed Nov. 23, 2021.
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