Buying a Home Using a Fixed Rate Mortgage
When you buy a home, the type of interest rate that you select will determine how much you will ultimately spend on the property and is an important factor to consider when you are determining what kind of financing option you will obtain. One popular type of interest rate is a fixed rate mortgage, which is characterized by having an interest rate that remains the same throughout the life of the loan. If you are looking to purchase a home in San Luis Obispo, California, and want to learn more about your interest rate options, Central Coast Lending with Mike can help. Read on to learn more about buying a home using a fixed rate mortgage.
Fixed Rate Mortgages: Essential Information
When purchasing a home, the two major types of interest rates are a fixed rate mortgage and an adjustable rate mortgage, or ARM. In a fixed rate mortgage, the interest rate of a loan is constant for the duration of the loan, as opposed to an adjustable rate mortgage, in which the interest rate fluctuates over time. Fixed rate mortgages are a common choice among home buyers because of their predictable payments, which can provide borrowers stability because they know what they can expect to pay every month. Fixed rate mortgages have a variety of term options ranging anywhere from five to thirty years, and the longer the term is, the lower the monthly payment amount will be. They do tend to have higher rates than adjustable mortgages initially, however an adjustable interest rate usually increases after its lower introductory fixed rate period ends.
The Advantages and Drawbacks of a Fixed Rate Mortgage
Fixed rate mortgages offer several advantages for a borrower. First of all, because the payment is the same every month, it makes it a safer option in case of unexpected life events such as a career change, a divorce, etc. It is easier to budget for and offers a certain level of predictability. Depending on the terms of your loan, your payments could be lower over a longer period of time, allowing you to qualify for a higher loan amount. Additionally, in a fixed rate mortgage, you are paying off part of the principal balance each month, which increases your home equity, and you can also make additional payments in order to pay off the loan more quickly. It is important to note that there are some drawbacks with fixed rate mortgages, including inflexibility; if home interest rates decrease, you will need to refinance the mortgage in order to get a better rate. Also, the payments you make mainly go towards the interest during the first years of the mortgage, taking it longer to pay off the principal balance of the loan.
If you are interested in learning more about buying a home with a fixed rate mortgage in San Luis Obispo, California, contact Central Coast Lending with Mike today for a consultation.
