Fixed-rate mortgages feature a fixed percentage rate and loan amount, so the monthly payment is the same every month for the entire length of the loan. Because of the loan's stability, this is the most common type of mortgage for first-time homebuyers.
Key elements of fixed-rate mortgages:
- The monthly principal and interest payment will not change over the life of the loan
- The interest rate will not change, even if market rates go up
- Knowing monthly mortgage expense in advance makes household budgeting easier
Common fixed-rate mortgages:
These loans allow homebuyers to borrow more money for the same monthly payment than do shorter-term loans. They may also make possible a lower down payment, because the down payment has less impact over the full life of the loan.
These loans generally require a higher monthly payment and down payment than their 30-year counterparts, and may be better suited for lower-priced homes. Since the term of the loan is half as long, the borrower gains significant savings on the total amount of interest paid on the loan.