What Is a Fixed Rate Mortgage?
The process of buying a house can be long and complicated, with many different choices to make. One of the most significant is deciding what type of mortgage you’re going to need based on your specific situation. While you won’t need to make the final choice until after you have found a home, it’s a good idea to start evaluating your choices early on.
There are two main types of mortgages to consider: fixed-rate mortgages and variable-rate mortgages, also known as floating. A fixed-rate mortgage provides the borrower with an interest rate that remains constant throughout the entire lifetime of the term. A variable-rate mortgage implies fluctuating interest, which means that your mortgage payments will also fluctuate.
A fixed-rate mortgage is the most popular choice as it provides the borrower with an exact amount each payment, but typically carries a slightly higher interest rate than a variable-rate mortgage to account for possible interest rate hikes in the future. It’s sometimes harder to qualify for a fixed-rate loan, which leads many people to choose a variable rate. There is, however, more of a risk involved with fluctuating payments.
Term lengths may also vary, with the most common being 25 years. This means that, in 25 years, the loan will be paid in full. If you’re able to pay off your loan quicker, you’ll definitely end up paying significantly less interest than if you were to stick with the 25-year term payment plan. You should examine your financial needs to determine which length will best suit your situation.