Fixed Rate Loans
The fixed rate mortgage loan is one of the most commonly used loan options chosen for residential mortgage home purchases and refinances. It guarantees a fixed, consistent interest rate throughout the life of the loan – the term options are usually 10, 15, 20, and 30 years.
Fixed rate loans are unlike adjustable rate mortgages, where interest rates can fluctuate over the life of the loan depending on a change in an index. Generally, the only way to change the interest rate on a fixed rate mortgage loan is to refinance, which involves paying off the old loan and replacing it with a new one under a different rate.
Qualifying for a Fixed Rate Mortgage
Qualifying for any mortgage under a fixed rate is less subjective because the monthly payment is constant and requires no assumptions. The other factors evaluated for qualifying purposes are similar to other loan options, such as your debt-to-income ratios, your credit scores, and your employment history/status. Although these factors are consistent, qualifying guidelines such as maximum debt-to-income ratios or minimum credit scores can vary depending on the type of loan, such as conventional, FHA, VA, or USDA mortgages. Each type has specific and unique guideline requirements. An understanding of the variances requires the guidance of an experienced loan officer.
Advantages of a Fixed Rate Mortgage
- The interest rate remains the same for the life of the loan
- Monthly payments are predictable and consistent
- Ideal for long-term homeowners who want to avoid interest rate risk
Disadvantages of a Fixed Rate Mortgage
- Interest rates are typically higher than the initial fixed interest rate term on adjustable rate mortgages (although this is only during the initial fixed rate term)
- Homeowners that are certain of the time they will remain in a home, where an adjustable rate option may be more beneficial, can incur higher mortgage interest costs
Is a Fixed Rate Mortgage Right for You?
Though fixed rate mortgages are typically the most preferred option, often a borrower’s unique situation might suggest that another option would be more beneficial.
Fixed rate loans are ideal if:
- You want (or need) a consistent, predictable payment for the foreseeable future
- You plan to stay in the home for an extended period of time
- You are financially conservative
- Your income fluctuates or is unpredictable
If you’re not sure if a fixed rate mortgage loan is right for you, refer to our loan options page and develop a general understanding of mortgage options. If you would like more detailed insights and explanations, contact an experienced loan officer at Park Cities Mortgage today. We have the ability to help you make an informed judgment about which option may serve you best.