Throughout the home buying process, there may be several mortgage-based terms mentioned that are either new or haven’t been part of a familiar conversation for quite some time. One of the most frequently discussed phrases during this time is the fixed-rate loan.
A fixed-rate mortgage is designed to provide consistency with both principal and interest over the entire life of a loan. A buyer can expect to pay the same amount each month, without concern of market conditions and other economic factors. This type of financing is also beneficial when determining and following a monthly budget. As a result, the fixed-rate loan is considered the most popular among current and prospective homebuyers navigating the market today.
Which Fixed-Rate Loan Term Is Best?
Although the monthly payment will remain consistent through the length of fixed-rate loan selected, the term will affect the actual amount. Generally speaking, a 30-year loan term will carry a higher rate compared with a shorter mortgage length; however, the amount of the loan is amortized over a longer period of time, equating to a lower payment each month. Conversely, a 15-year loan term will correlate with a higher monthly payment yet will be paid in a much shorter timeframe. Loan term also affects the total amount of interest paid. Shorter terms are deemed less risky, and as a result lenders usually charge lower interest rates in these cases, amounting to less money being paid overall. On the other hand, more funds need to be allocated to a monthly mortgage payment and can cause liquidity issues with improper budgeting.
Can I Pay More Toward My Loan Each Month?
The majority of residential home loans do not carry a pre-payment penalty and many borrowers choose to make additional payments toward their principal when cash flow allows. As a result, several years may be trimmed from the original loan term. Be sure to check these details with your Mortgage Professional when comparing the best loan option to meet your financial needs.
Is A Fixed-Rate Loan Right For Me?
As with any loan structure, there are several factors to consider before making a final decision. Potential changes to lifestyle, employment opportunities and overall time estimated to be spent in the home are a few variables that should be weighed when buying a home. Our team of Mortgage Advisors is ready to help guide you through this decision and determine the best financing scenario to achieve your homebuying or refinancing needs.