How To Choose The Best Fixed-Rate Mortgage

We have already spoken about what factors to consider when deciding between a fixed rate mortgage and an adjustable rate mortgage. If you are still stuck with this decision, you should read that section again.

As mentioned before if you want peace and security of mind, you would probably be better off with a fixed-rate mortgage because it is completely predictable in terms of the amount you have to pay in the future. However, an adjustable-rate mortgage can help you save money in the long run if you’re ready to gamble a bit on market trends.

A fixed rate mortgage is usually easy to find than an adjustable-rate mortgage. However, this does not mean that you should pay any less attention to the various features concerning a fixed-rate mortgage. In this section we will discuss a few of these.

 

Contact information.

You should always have the phone number that you can call in case there are any questions or problems in the future. This number should not be just a call center number for a large institution. It should be the number of the person you ultimately interview for a direct phone number, fax number and e-mail address.

Details of the person you deal with

But in most cases you’ll be dealing with a loan officer from the lending institution. This is the person that you should be able to call and check up with regarding the progress of your loan of to complain if the process is moving as expected.

Loan processor

A loan processor is the person who handles all the paperwork concerned with the loan from the time that you submit your application to the time the loan is closed. Loan processor’s jobs includes everything from conducting credit investigation to preparing loan documents that you will sign. If possible get the loan processor’s direct phone number, fax number and e-mail address.

Dates

If any problem arises in the future dates could prove important.

Loan program name

If the mortgage lender has a particular name for the mortgage they are qualifying you for, you should have that name. It makes for easier reference.

Interest rate

What is the interest rate that the lender is quoting along with the annual percentage rate?

Points

As we have discussed earlier what is the number of points that are being charged for a particular interest rate. A quote of an interest rate without a quote of points is quite meaningless.

Fees

Ask the lender to identify and itemize all lists of fees and charges that are applicable to your loan application such as processing fee, credit report, appraisal fee and others.

Required down payment

You should ask the mortgage about down payment requirement. In most cases you’ll be required to make at least 20% to avoid taking the private mortgage insurance. However, if you’re agreeable to taking private mortgage insurance you can have a downpayment as less as 5 to 10%. However, this is rare with regular mortgage lenders. To find lower down payments limits, one can usually do better with an FHA mortgage. If you cannot make 20% down payment and don’t want to take the private mortgage insurance and you can utilize the 80-10-10 financing technique that we have discussed earlier.

Loan amount allowed

Posted on case and does have different slabs of terms and conditions that apply to different levels of borrowing. Getting a certain interest rate and terms and conditions that you like is no good if you are not being lent to amount your need. Ask the lender how much amount he is willing to give.

Term

What is the term of the mortgage that you are qualifying for? Or the terms and the interest rate valid for the 30th or 15 year mortgage. The interest rate on a mortgage to different towns also tends to defer.

Prepayment Penalties

We strongly urge you to avoid a prepayment penalty clause in your contract. Ask a mortgage lender if there is any prepayment penalty clause in your home loan-counseling out. The lender is bound to get this in the truth in lending disclosure form that is handed over to the borrower.

Is the loan Assumable?

Finding an assumable home loan is quite difficult in today’s date. All VA loans are assumable. With an assumable loan, the borrower can pass off the mortgage to the person when he sells his house. The mortgage continues on the same terms that were applicable for the first home owner.

Estimated monthly payment

How much are you going to pay each month for a mortgage?

Should You Lock Interest Rate With A Mortgage Lender?

Most lenders will agree to lock the rate and other terms that they quote you for a 30 day period. For a nominal fee or slight interest-rate increase lenders will typically, to hold the rates for 45 to 60 day period. The obvious benefit is that this commitment of rate lock as it’s often called provides you with peace of mind and guards you against interest rate inflation in the next few days that you take to decide and make up your mind.

What you’re doing is that you’re paying the mortgage lender a certain amount and transferring the risk of something happening in the market that could increase the cost of the loan. Locking a rate on the mortgage is analogous to buying insurance. You pay a premium to transfer the risk of something bad happening onto the lender, which in this case is increase in the interest rate in the days between the quote and the processing of the home loan.

The cost of purchasing a 60-day rate lock is in the range of 1/8 to 1/4 of additional points. On a $200,000 mortgage this could work up to $250-$500. So the question is this paying extra worth it?

If you want peace of mind and are getting an actual good interest rate, it makes sense to block it just in case it happens to increase in future. Compared it to a situation where you have paid for rate lock and the rate increases by .5%. Over a 30-year mortgage for $200,000 an increase of .5% means that you would be paying approximately $24,000 more. This does not seem a lot compared to the initial $250 or $500 does it?

No one can really predict what happens to the interest rate in the next month or two. Rate lock is simply buying peace of mind when you know that what you’re getting now is a good deal. Be sure to get the lender’s written commitment to the rate lock. Verbal assurances should be considered completely worthless.

Whenever you are getting quotes from a lender for a fixed-rate mortgage, you should jot down information on a piece of paper so you can make comparisons easily.

Understanding Fixed-Rate Mortgages

The commonest kind of fixed-rate mortgages are a 15 years on a 30 year mortgage. Over the entire term of this kind of the mortgage the interest rate remains the same and so does your monthly mortgage payment. Therefore, these kind of mortgages are predictable, there are no surprises and peace of mind regarding future changes in monthly mortgage payment because it’s not going to happen.

The interest rate being offered on a fixed rate mortgage is slightly higher than an adjustable-rate mortgage. The reason is that if you look at the interest rate graph over the past 30 years you will see that it has had its own share of market changes going high and low on the graph. Because the monkeys and it is going to a short you offer fixed-rate in spite of future increases in the interest rate, he will charge you a slightly higher interest rate than an adjustable-rate mortgage in order to safeguard his interest. The biggest advantage of a fixed rate mortgage is that you can plan paying for it well in advance. You can budget and organize your fans is in such a way so as to have a complete comfortable there is in keeping with the payments in the future. This is because you know exactly how much you’re going to pay for it in the future as well

The fixed rate mortgage lender is going to charge you a certain premium interest rate because of blocking your fixed-rate interest in spite of future fluctuations. The longer the term of the mortgage the more the risk lender is agreeing to take.

There are a few disadvantages of a fixed-rate mortgage as well. Although for many people it is the primary choice since it a safe and predictable, you must be aware of the disadvantages of a fixed-rate mortgages were.

  • You cannot take it advantage of a falling interest rate in the future in without refinancing.
  • Refinancing becomes impossible if the interest rate continue to decline in the falling market value of real estate. Refinancing takes time and costs money.
  • Fixed-rate mortgages are not assumable. During the period of high interest rate your buyers will have to opt in their own financing. However, it is not easy to find an assumable ARMs as well.
  • If your fixed rate mortgage comes with a prepayment penalty, you might find it impossible or very expensive to pay it off sooner in order to save money on interest.

Advantages of Choosing A Fixed Rate Mortgage

As mentioned before a fixed rate mortgage has maintained its popularity with borrowers over several decades. In fact this was the only kind of mortgage that was offered to borrowers a few years back before more progressive variations of mortgage loans such as the variable rate mortgage were brought into practice. While other kind of mortgage loans have gained in popularity a fixed rate mortgage still continues to enjoy its position as the most sought after style of home loan. A fixed rate mortgage as the following advantages.

  1. A fixed rate mortgage offers security to the borrower as the payment remains constant about the tenure of the mortgage.
  2. Fluctuations in the interest rate in the economy does not affect the borrower. He continues to enjoy the same interest rate that he signed up for in the mortgage contract. If the interest rate in the economy increases the borrower continues to pay the low interest rate and if the interest rate decreases the borrower may have the option of refinancing the mortgage into a low rate.
  3. Most of the fixed-rate mortgages allow the borrower to make lump-sum payments directly towards the principle of the loan that allows the borrower to pay off the mortgage earlier than the decided term as well as decreasing the amount to be paid as interest towards the entire home loan. The borrower can choose to make the lump-sum payment according to the terms and conditions decided with the home loan lender. Paying half the monthly mortgage payment every two weeks pace of a 30 year fixed rate mortgage in about 22 years. One extra payment per year may reduce the amortization period of the mortgage to about 26 years. Additional lump-sum payments or additional by monthly payments are not compulsory and are usually a matter of choice on the behalf of the borrower.

What Is A Fixed Rate Mortgage And It’s Benefits

A fixed rate mortgage is when the interest rate is decided upon the signing of the mortgage contract and remains the same throughout the tenure of the mortgage. In a fixed rate mortgage, the borrower can know exactly what his payment plan is going to be since the installment is going to remain fixed throughout.

The borrower will know exactly how much he has to pay and how long it is going to take him to finish making the payments on the mortgage. The installment amount every month remains the same as well.

Fixed rate mortgage usually comes in 2 most common variations of 15 years or 30 years. Other permutations of 20 years or 25 years also exist, but are usually not used since the 15 year term and 30 year term offers the most benefits.

Advantages of a Fixed Rate Mortgage

Since the interest rate does not determine on the economy, the payments remain constant all throughout the length of the mortgage even if the interest rate increases in the future. It works to the advantage of the borrower if he takes a fixed rate mortgage when the interest rate is low in the market. If the borrower gets a good deal, he can be sure to take full advantage of it right till the end of the mortgage period.

A fixed rate mortgage makes good sense for someone who needs to budget his home purchase and wants to know exactly how much he will me paying towards the home loan. This makes financial planning for other expenses and requirements all the more organized.

Should You Choose a Fixed Rate Mortgage?

You should discuss your particular situation with a talented and helpful lender. Generally, you’ll find that fixed rate mortgages are the right choice if:

  • You think interest rates are low
  • You can afford the payment for the house you want
  • You need to budget for and predict monthly payments
  • You will keep your home for a relatively long period of time

Fixed mortgages might come at a higher price than other kinds of mortgages when you sign up for them. The interest rate that you are getting might be higher than the ones currently offered on variable rate mortgages.

However, just because the interest rate is low on a variable rate at present, does not mean that it will not shoot up in the future. You pay additional costs and a higher rate of interest for the luxury of having a fixed payment through the mortgage in spite of the fluctuations that might occur in the market in the future.

Additional costs built in to a mortgage are called closing costs. If you want to be a smart borrower, ask the lender to present you with an itemized list of all processing charges and costs. You can then negotiate over these extra costs and even have the lender do away with a few all together.

What Is A Fixed-Rate Mortgage

A fixed rate mortgage is a home loan with a fixed interest rate and a fixed mortgage payment every month for the duration of the loan that is typically 10 to 30 years.

A fixed rate mortgage is the commonest kind of a home loan.

In a fixed-rate mortgage the lender allows the consumer to lock in a certain rate of interest for a certain duration.  The longer that you want to lock in the current rate of interest the more you will probably need to pay in terms of certain charges. This is for the privilege of having a steady interest rate which is not affected by volatile market conditions.

fixed rate mortgage

For example someone who chooses to lock in the current interest rate for five years may have to play certain pre-bid charges while someone who chooses to block in the interest rate for a period of six months might not have to.
For a person who chooses a lock in period of five years will have his mortgage and interest-rate adjusted after five years whereas someone who chooses six months as the duration of the fixed-rate will have it adjusted after six months.

The benefit of a fixed rate mortgage is that it offers the benefit of a variable rate mortgage along with a certain predictability and steadiness in controlling the monthly payments on a mortgage.  The important part is that your lender should allow you to vary the period for which you want your interest rate to be locked in. 

For example, even if you are opting for a six-month of fixed interest rate period, if you anticipate a sharp rise in the interest-rate in the future lender should allow you to lock in the current interest rate for a period of next five or 10 years without charging you an extra penalty fee.

If the rates really go down in the future and you feel that you paying much more than you ought to, you can refinance your home loan. However, the saving should be worth the cost and fee of refinancing the loan.