What is a Fixed Rate Loan?
When you borrow money by taking out a loan, you will be paying back this loan with interest.
It is the interest that drives how expensive a loan is. There are other fees involved, but the interest rate determines the bulk of the cost of a loan. The higher the interest rate, the higher the costs you will be paying.
So, what is a fixed rate loan?
A fixed rate loan is a loan option that has an interest rate that doesn’t change during the period of the loan.
It is widely considered the safest and more popular option. It protects you, the home buyer, against increases in interest rates over the life of the loan.
This means you will know what your monthly payment is and that it will not change unless you change the terms of your loan through refinance or other means. Because you monthly payment stability, you can make better budget decisions.
Is it better to have a fixed or variable loan?
Variable rate loans have interest rates that change as the economy fluctuates. Your monthly payment can change as the market changes.
Fixed rate loans are immune to the ebbs and flows of the economy. You are ensured of consistent monthly payments no matter the changes in the market.
The fixed rate loan is perfect for families looking for their ‘forever home’ and want to avoid the uncertainty that comes with variable loans. With a fixed rate, they don’t have to stress about changes in their monthly payment as the economy goes up or down.
“Interest rate constantly change as the economy fluctuates. Fixed rate loans are immune to these constant changes and your monthly payment remains the same.”
As the economy grows and slows down, the interest rates changes along with the fluctuation. With a fixed rate loan, your loan is immune to these constant change and your monthly payment remains the same.
How does it work?
The lender will use your credit history to determine the fixed interest rate. Or course, the better the credit score, the better the rate and loan terms.
The lender will also take into consideration other factors when determining the fixed rate, such as the following:
- Amount of down payment you plan to make. Fixed rate loans require as little as three percent down payment.
- Your income.
- The length of the loan. The most popular loan program is for 30 years. But 20, 15, and 10 year loans are also available for fixed rate loans.
Note that Secure Choice Lending can offer odd amortization terms to your file at your request. You can request 13 years, 19 years, or 27 year. We can process this with no problem.
How are interest rates determined?
It is the job of the Federal Reserve to keep the nation’s financial system stable.
They set the interest rates depending on how the economy is doing. When the economy is growing, the Fed reels in the reigns to keep it from growing too fast by raising short-term interest rates.
Consequently, when the economy is slow, they lower the short-term interest rates to help speed up the economy and avoid it from going into a recession.
When interest rates are high, you earn more in your savings deposits. However, you will pay more in interest when you need to borrow for big item purchases such as a house.
Conversely, when interest rates are low, your savings don’t earn much interest. But it would be cheaper to take out a loan.
Effect of Length of the Loan on Interest Rate
Keep in mind that the more years there are on a fixed rate loan, the lower the monthly payment.
“The More Years There Are On A Fixed Rate Loan, The Lower The Monthly Payment”
In other words, for any given loan amount, a 30-year loan term, the monthly payment is lower than a 14-year term.
However, the downside of this is a higher interest rate. You will be paying more total interest over the life of the loan than with a shorter term loan.
Many people prefer a 30-year fixed rate loan over shorter term loans because, for the same loan amount, the monthly payment is lower. You can then save extra cash every month for other things.
On the other hand, shortening the loan results in greater interest savings. The interest rate will be lower and you will be paying less total interest over the life of the loan.
However, people who have the cash and want to pay off their home faster with a low interest might want to opt for shorter terms such as a 15-year fixed rate loan. But this means paying higher monthly payments.
Secure Choice Lending can assist you with a Fixed Rate loan
If you are looking to secure a fixed rate loan, call Secure Choice Lending at 951-733-8925.
A 30-year fixed rate loan is the most popular. But if you prefer shorter term loans, we can look at 20, 15, or even 10 year loans.
We can also add an odd amortization terms to your file at your request. Do you prefer a 13-year loan? 19-year? 27-year? Just ask us and we can look at it closely with no problem.
“Do you prefer 13-year loan? 19-year? 27-year? Just ask and we will help you in any way we can.”
Our Loan Officers will be happy to answer all your questions and discuss your options until everything is clear to you.
Secure Choice Lending is a full service mortgage broker that will secure you a mortgage that doesn’t break the bank.
To streamline the lending experience, our team of financial experts matches consumer needs with the appropriate loan programs and level of risk. With loan officers versed in all mortgage types, solutions to your home-buying questions are a phone call away.