What is a fixed-rate mortgage? As its name implies, this mortgage loan’s interest rate will stay the same (“fixed”) for as long as you keep the loan. Your monthly payment also remains the same. This reliability makes fixed-rate mortgages quite popular. You can choose a fixed-rate option for conventional loans, as well as FHA, USDA and VA loans.
Before you decide on a loan, consider these fixed-rate mortgage pros and cons:
Advantages of a fixed-rate mortgage
- Your payments remain the same even if interest rates increase in the financial markets.
- A steady interest rate is a good option if you plan to stay in your home for a long time.
- These mortgages are available in several different term options — 10, 15, 20, 25 and 30 years.
Disadvantages of a fixed-rate mortgage
- Your initial principal and interest payments are higher than they would be with an adjustable-rate mortgage (ARM).
- If interest rates eventually drop, you’d need to refinance (which carries costs) to get a lower mortgage interest rate.
FIXED-RATE OR ADJUSTABLE-RATE MORTGAGE?