Understanding fixed-rate mortgages

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Fixed-rate mortgages offer many advantages. These loans are a popular choice for homebuyers and homeowners who want to refinance and lock in a lower interest rate or secure a predictable monthly payment.

Here’s a summary of what you should know:

  • A fixed-rate mortgage is a home loan on which the rate of interest charged never changes. Whether the term is 15 years, 30 years or some other length of time, neither the rate nor the payment will go up or down.
  • A fixed-rate mortgage is a good way to finance the purchase of a home and, through regular monthly payments, pay off the loan over the term. At the end of the process, you’ll own the home without a mortgage.
  • Fixed-rate mortgages are less risky for borrowers than mortgages that have an adjustable interest rate. While the payment can never decrease, it can never increase either. With a fixed-rate loan, you can plan your monthly housing expenses without worrying your rate or payment may change.
  • Most fixed-rate mortgages are fully amortizing. That means payments are set up in an amortization schedule, so a portion of each payment is applied to interest and a portion applied to principal. Your loan balance will never increase. Instead, as you make your payments month by month, the amount applied to interest will decrease and the amount applied to principal will increase until the loan is paid off.
  • A fixed-rate loan with a 15-year term will have a slightly lower interest rate — but a significantly higher payment — compared with a loan that has a 30-year term. With the shorter term, you can build equity faster, pay off the loan sooner and pay less total interest.
  • Fixed-rate mortgages are less complicated than adjustable-rate mortgages. That means it’s easier to shop around and compare lenders’ rates and fees on fixed-rate mortgages. The lower payment may make it easier for you to qualify for a longer-term fixed-rate mortgage as well.