FIXED RATE MORTGAGES
The traditional fixed rate mortgage is the most common type of loan program, where monthly principal and interest payments never change during the life of the loan. This type of mortgage is structured, or “amortized” so that it will be completely paid off by the end of the loan term.
FIXED RATE LOANS
Fixed rate mortgages are available in terms ranging from 10 to 30 years with monthly payments and can be paid off at any time without penalty. There are also “bi-weekly” mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 “months” worth, every year.)
Even though you have a fixed rate mortgage, your monthly payment may vary if you have an “impound account”. In addition to the monthly loan payment, some lenders collect additional money each month (from folks who put less than 20% cash down when purchasing their home) for the prorated monthly cost of property taxes and homeowners insurance. The extra money is put in an impound account by the lender who uses it to pay the borrowers’ property taxes and homeowners insurance premium when they are due.
If either the property tax or the insurance happens to change, the borrower’s monthly payment will be adjusted accordingly. However, the overall payments in a fixed rate mortgage are very stable and predictable.
Benefits Of A Fixed Rate
- Fixed-rate mortgages are available in terms ranging from 10 to 30 years and can be paid off at any time without penalty. This type of mortgage is structured, or “amortized” so that it will be completely paid off by the end of the loan term.
- Your monthly payment stays the same throughout the agreed term. As a result, it’s easier to budget for your monthly expenses and stay on top of your finances.
- Interest is calculated on the sum outstanding, so you pay most interest at the beginning of the mortgage. By locking in the interest rate for between 3 and 5 years, a fixed rate could mean huge savings.
Mortgage Loan Requirements
You’ll need to prove to your mortgage lender that you bring in enough money each month to comfortably afford your monthly home loan payment. Typically, mortgage lenders want your monthly debts, including the estimated cost of your new mortgage loan payments, to be less than 28 percent of your gross monthly income.
Most conventional lenders require borrowers to have credit scores of at least 620 to qualify for a 30-year mortgage loan. Those borrowers whose credit scores are 720 or better will generally qualify for the lowest interest rates.
Most lenders prefer to work with borrowers who have worked at the same job for at least two years.