What is a Fixed-Rate Mortgage?
Choosing a mortgage is hard enough, and it can become especially difficult with the many different types on the market. A fixed-rate mortgage is one of the most common and popular kinds of mortgages, but what is it exactly?
A fixed-rate mortgage is appealing because the interest rate remains the same throughout the life of the loan. This is opposed to variable rate mortgages where the interest rate may fluctuate based on the current interest rates for mortgages.
It’s extremely beneficial to new borrowers because they can always determine how much they’ll pay each month, which means paying back the mortgage remains consistent. The only drawback to a fixed-rate mortgage is that borrowers don’t have the chance to get a lower rate than they originally had.
For example, if someone gets a fixed-rate mortgage at 5.6%, the housing market may improve, and interest rates could drop. After a year, the rates could drop to 3.4%, and while a variable mortgage will drop with the market to 3.4%, a fixed-rate mortgage borrower will still remain at 5.6%. On the other hand, the market rates could increase and the fixed-rate borrower won’t have to pay a higher interest rate.