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.
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.
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.
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.
Spire Financial (A Division of AmeriFirst Financial Inc.) brings lending expertise to you. All of our loan officers offer personalized communication for every client, guiding them through the process. We can show you ways to maximize your finances and unlock future opportunities. Spire Financial keeps you in control of refinancing, debt consolidation, and home equity. Together, we can achieve your financial goals.
Spire Financial, a division of AmeriFirst Financial, Inc., 1550 E. McKellips Road, Suite 117, Mesa, AZ 85203 (NMLS # 145368). 303-595-0110. © 2022. All Rights Reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all loan amounts. Other restrictions and limitations apply. AmeriFirst Financial, Inc. is an independent mortgage lender and is not affiliated with the Department of Housing and Urban Development or the Federal Housing Administration. Not intended for legal or financial advice. Visit https://amerifirstloan.com/pages/state-licensing for all state licenses information. Visit NMLS Consumer Access at https://www.nmlsconsumeraccess.org/