Standard Categories of Fixed-rate Mortgages

Direct Finance

Mortgage loan agreement application with house shaped key ringBuying a home upfront requires a substantial capital investment. The best solution for most individuals yearning for home ownership is a mortgage. Fixed-rate mortgages have predictability, making it easy to plan a budget around your monthly payments.

A mortgage company will offer various fixed-rate residential home loans. Though the interest rates on these loans remain fixed, your monthly payments might increase with a rise in mortgage insurance, real estate tax, or home insurance. Here are the different options for fixed-rate mortgages:

5-year Loan

This type of mortgage maintains a similar interest rate for the first five years of the loan. After this time, the loan changes to an adjustable one. The main benefit of this loan is the low-interest rate in its initial years. However, after the five years, your interest rates might rapidly increase depending on the current rate market index.

15-year Loan

This loan is quite attractive since it comes with lower interest rates. It allows the homeowner to build equity at a fast pace. This is because the credit has higher monthly payments compared to a 30-year loan.

30-year Loan

This is the least costly home loan. Though the credit typically has higher interest rates than 15-year mortgages, the monthly payment is low since it is spread out over thirty years. It is the best option for low-income families since it allows them to purchase seemingly expensive homes at low monthly costs.

15-year and 30-year home loans are the most common types of fixed-rate loans. Be wary of a no-cost loan option when signing for a fixed-rate loan. This means that the closing costs of your investment are rolled into your mortgage. Though it might look like a lucrative deal upfront, you will be paying interest on these closing costs over the life of your loan.