Fixed rate mortgages are the most sought-after home loan type due to their predictability and stability. Typically, these come with terms of 30 years or longer; however, some lenders now provide 15- and 10-year options as well.
A fixed rate mortgage guarantees your interest rates will never change over the life of the loan, so you always know what your monthly payments will be. This is in stark contrast to an adjustable-rate mortgage which allows for fluctuations in rates.
Calculating your monthly payment with a fixed-rate mortgage can be complicated, but the key is knowing how much you owe at each end of your loan term. To figure it out, take the total owed at the beginning of each month and multiply it by your interest rate (assuming it’s 4% for this example).
Your monthly payment will include a portion to cover any interest accrued between payments. This portion will be smaller in the early years of your loan, and more as additional principal is paid off over time.
Are you in the market for a lower rate? Talk to us about switching to a fixed-rate mortgage. Our team of experts can help determine whether it makes financial sense to switch from an ARM to a fixed rate.
Fixed-rate mortgages tend to be more costly than adjustable rate mortgages, and they may be harder to qualify for. You may face difficulty qualifying if your credit is poor or your income is limited.
However, if you’re committed to your home and want a low rate for the long haul, it may be worth the additional expense. Furthermore, making the switch when rates are low could save money in the long run since fixed-rate mortgages typically feature a smaller spread than variable-rate ones.
Fixed-rate mortgages come in all forms and sizes, but one thing remains constant: your interest rate will remain consistent throughout its term. This can be a huge benefit if you plan to stay in your home for several decades.
If interest rates decline significantly, you may need to refinance your fixed-rate mortgage. To do so, the same process as when you originally secured it applies – including a review of financials and new application.
Typically, you’ll need to demonstrate your capacity to pay off current monthly payments and/or debts. This could include pay stubs, bank statements or other evidence of income.
Calculating your payments is the key to deciding if a fixed-rate mortgage makes financial sense for you. We have several tools and functions on this website that can do the calculations for you, but always consult with an experienced True North Mortgage agent to guarantee the information is correct and complete.