When you are buying a home, the type of mortgage rate you choose is a significant factor to consider and will be a major factor when determining the amount of money that you will spend each month on your mortgage payments. Fixed rate mortgages, which are loans that have an interest rate that stays the same throughout the life of the loan, are one popular way to help you finance a home. If you are interested in buying a home in Orchard Park, New York, and want to learn more about your mortgage options, Nickel City Funding, Inc. is here to help. Read on to learn more about purchasing a property with a fixed rate mortgage.
How Does a Fixed Rate Mortgage Work?
The two main types of mortgage rate options are fixed rate and adjustable rate, (sometimes referred to as ARM). The interest rate of a fixed rate mortgage remains constant throughout the duration of the loan, while the interest rate of an adjustable rate mortgage fluctuates periodically. A number of homeowners opt for a fixed rate mortgage because the monthly mortgage payments are more predictable so borrowers know precisely how much they will spend every month. There are a variety of different term options to choose from with a fixed rate mortgage, and they can range anywhere from five to thirty years. Essentially, the longer term you obtain, the lower the overall monthly payment you will have.
What Are the Pros and Cons of a Fixed Rate Mortgage?
There are many advantages to obtaining a fixed rate mortgage. Because the monthly cost is basically the same every month, it makes it simpler for a borrower to budget and it can help offer a safer option if in the event of an unexpected life occurrence such as a divorce, a loss of job, etc. With each mortgage payment that you make, you are helping to pay off the principal balance of the loan, which helps you to increase your home equity, and with a fixed rate mortgage, you have the option to make additional payments to pay off the loan more quickly if you have the capability to do so. Also, with a fixed rate loan, if you are able to get longer terms in which your payments are lower over a longer period of time, you could be able to qualify for a higher loan amount. It is important to note that there could possibly be some potential drawbacks to a fixed rate mortgage, including lack of flexibility, and within the first couple years of this loan type, the mortgage payments mainly go towards the interest, which make it take longer to pay off the principal loan balance.
If you are interested in buying a home in Orchard Park, New York, and want to better understand your mortgage rate options, contact Nickel City Funding, Inc. today for a consultation.