What is a Fixed-Rate Mortgage?
If your goal is long-term home ownership, you may enjoy the comfort of having a consistent payment each month.
- Fixed-rate mortgage definition: With a fixed-rate mortgage, your loan will be typically paid over a period between 10 to 40 years with the same interest rate each month. Your payments are based on a fixed interest rate, principal loan amount and amortized interest over 10 to 40 years. Griffin Funding offers custom loan terms between 10 to 30 years. For example, if you wanted a 19 year fixed mortgage you could fix your rate for 19 years instead of the typical 15 or 30 year mortgages.
With this type of loan, you can create a low interest, dependable mortgage payment that will stay the same for the life of your loan. Your actual payment will vary based on your financial situation (credit score, down payment, etc) and the current interest rates at the time you apply. This differs from adjustable-rate mortgages, which have interest rates that can fluctuate depending on a number of different factors.
- Are you a veteran? Find out more about current VA loan rates here.
What is a Typical Fixed-Rate Mortgage?
The typical fixed-rate mortgage depends on a number of different factors. The rate you are quoted at the time you apply depends on:
- Interest rates in the current economy
- The size of your down payment
- Your credit score (a measure of how trustworthy of a borrower lenders find you)
- Other financial factors, such as employment history
To find out more about what rates you might be able to secure, contact us to discuss your options.
What Are the Advantages of a Fixed-Rate Mortgage?
Fixed-rate mortgages have a number of advantages when compared with other loan options. If you’re considering a fixed-rate mortgage, it’s worth thinking about these benefits:
- Consistency: The rate on your monthly mortgage payment stays the same each month.
- Predictability: You know that your payments won’t jump or drop unexpectedly.
- Chance for low payments: If a borrower secures a fixed mortgage when rates are low, they keep those low rates throughout the loan’s term.
What Are the Disadvantages of a Fixed-Rate Mortgage?
Fixed rate mortgages are often a strong option for most home buyers. However, it’s important to know that there are some potential drawbacks:
- No lower introductory rate: Some adjustable-rate mortgages offer lower rates to start with, which fixed-rate mortgage borrowers cannot take advantage of.
- Fixed at the original rate: while this could be a good thing, it could also put them at a disadvantage; if a borrower secures their loan when interest rates are high, they are stuck with the higher rate for the entirety of their loan unless they refinance.
What Do I Need to Qualify?
Fixed-rate mortgages can be a great deal for borrowers—so how do you qualify? There are a few different parts of a borrower’s financial profile that are factored into a lender’s decision.
Typically, lenders want your monthly debts, including the estimated cost of your new loan payments, to be less than 30% of your gross monthly income—this may even be a requirement for some FHA-backed mortgages. The thought behind this requirement is that it makes it less likely that a borrower will default on the loan if they have enough income to securely make their payments each month. It’s likely that you will need to provide proper pay stub, 1099s, w-2’s, award letters, and tax returns when applying.
Lenders may also want to see that you have been employed with the same company for about two years, or at least stayed within the same industry. This is another way that lenders can feel secure that you will be able to consistently make your payments each month.
For conventional fixed-rate mortgages, most lenders require that borrowers make a down payment—which can be as much as 20%. However, in many cases, borrowers are able to secure a much lower down payment thanks to versatile loan options.
There are many factors that go into determining how much your down payment is including the cost of the home you want to buy and your current financial standing. That said, the more money you put down, the less you’ll have to take out as a loan, which can help you save substantially over the course of your mortgage.
Credit scores measure how trustworthy of a borrower you have been in the past. The higher the score, the more willing lenders are to lend money to you and the better terms you can secure. During the application process, lenders will check with the credit bureaus to see how consistently you have paid off debts in the past.
A high credit score (720 or better) signals to lenders that you are likely to make your loan payments on time. Lenders usually like to see a score of at least 620 to qualify for a 30-year fixed loan. A high credit score can also lower your interest rate dramatically, so it may be worthwhile to spend time rebuilding credit if yours is low.
For those with lower credit scores, there are options. For example, some FHA loans are built to help those with lower credit secure a loan at an affordable rate.
How to Calculate Fixed-Rate Mortgage Costs
The exact cost of a fixed-rate mortgage depends on a number of different factors:
- The size of the loan: The more expensive the property, the more the mortgage will cost.
- Your interest rate: Interest rates are determined according to the factors mentioned above, such as the size of the down payment and your credit score.
- Fees and closing costs: Most lenders include some fees and closing costs along with the price of your mortgage.
Ultimately, many different features of your financial situation determine the way that your fixed-rate mortgage is calculated. To get a more accurate estimate, it’s best to speak directly with a representative from Griffin Funding.
Find Out If a Fixed-Rate Mortgage Is Right for You
The best way to find out if a fixed mortgage is right for your financial situation is to contact a Griffin Funding representative—or, simply apply online with our quick and simple application form. Whether you’re a veteran, a retiree looking for a reverse mortgage, or looking to buy your first home, we’re here to help.