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Fixed-Rate Mortgages
What is a Fixed-Rate Mortgage?
A fixed-rate mortgage is a home loan where the interest rate remains the same for the entire term of the loan.
This type of loan may be a good fit if you prefer predictable monthly payments and longterm stability.
Fixed-rate mortgages are offered by private lenders and may be conventional or government-backed.
Because the rate does not change, your principal and interest payments remain consistent over time.
Interest rates for fixed-rate mortgages are typically:
Slightly higher than initial rates on adjustable-rate mortgages
Stable regardless of market fluctuations
Loan terms commonly include 15, 20, or 30 years. To apply, borrowers must complete a mortgage application and provide standard financial documentation.
Types of Fixed-Rate Mortgages
- Amortized fixed-rate mortgage – one of the most common types of mortgage loan offerings from Texas lenders. This loan has a fixed-rate of interest over the life of the loan and steady installment payments. A fixed-rate amortizing mortgage loan requires a basis amortization schedule to be generated by the lender. An amortization schedule is easiest to calculate with fixed-rate interest since it can be fully created at the issuance of the loan. Overall, the distinguishing factor of a fixed-rate mortgage is that the interest rate for every installment payment does not change and is known at the time the mortgage is issued.
- 5-year fixed-rate mortgage – maintains the same interest rate for the first five years, then turns into an adjustable-rate mortgage. The advantage is that the initial interest rate is lower than on a 30-year mortgage. The disadvantage is what happens after five years. Your interest rate could increase rapidly, depending on what current rates are. Therefore, this is a good loan if you’re sure you will sell your Texas home within five years.
- 15-year fixed-rate mortgage – has lower interest rates and allows you to pay off the principal faster than with a conventional 30-year loan. That means you build up equity faster. On the other hand, 15-year mortgages have higher payments. For that reason, there’s a slightly higher risk of default if your income drops.
- Biweekly fixed-rate mortgage – speeds up amortization, reduces total interest costs and shortens the loan term. You make 26 biweekly payments, which amounts to 13 annual payments, instead of 12 monthly payments. Conversion to a 30-year fixed-rate loan is usually permitted. Payments are deducted automatically from your savings or checking accounts.
- 30-year fixed-rate mortgage – the most affordable conventional loan. Even though it has higher interest rates, the monthly payment is lower because the loan repayment is spread out over 30 years. This is a good loan if you plan to stay in your Texas home for a long time. It’s also good for lower-income families because it allows them to buy more house with a lower monthly cost.