Most people would like to own their own home, but to do so would require you to get a mortgage for your dream house. When you apply for a loan, the lender will look at two things: the appraised value of the property, and your ability to pay the mortgage.
The total payment usually includes 10 percent of the total amount and the monthly payments. At this point, you have to decide on the term of the loan and the type of mortgage you want. One of these is the fixed rate mortgage. Here is what you should know about a fixed rate mortgage and if these conditions suit you.
The rate remains the same
As the name suggests, you pay a fixed interest rate for a fixed rate mortgage from beginning to end. For example, if you have a 30-year loan, you will pay the same interest rate from month 1 to month 360. Your monthly payments may rise or fall depending on other factors, such as home insurance and real estate taxes, but what you pay for the interest itself is fixed.
You pay the interest at first
The interest rate is a percentage of your principal or the money you borrowed for your home. The total interest will lessen as you pay off more of the principal. With a fixed rate mortgage, your monthly payment in the first few years will be mostly the interest, and a bit of the principal. You will get very little equity in your home at first, which might affect you if you sell your house within 5 to 10 years of a 30-year loan.
You get the best rates with a 15-year loan
You can choose longer loan terms to keep the monthly payments lower or to get a more expensive house. However, the most cost-effective term with a fixed rate mortgage is 15 years, because the interest rates are low and you gain equity quickly. You will also pay a much lower interest with a fixed rate mortgage in a 15-year loan term.
A fixed rate mortgage can protect you from sudden surges in interest rates, but it is not always the most affordable choice. If you want predictable mortgage payments and have no intention of selling your home before you finish paying off your mortgage, a fixed rate mortgage can be a good choice for you. Ask your mortgage company for comparisons of the various mortgage options.