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A fixed-rate mortgage (FRM) can give you peace of mind by protecting you from interest rate increases and providing you with consistent monthly payments. Predictable payments help with your personal budgeting, but make sure you weigh the benefits and drawbacks before signing on the dotted line.
A fixed-rate mortgage has an interest rate that stays the same for the life of the loan — keeping monthly payments consistent. FRMs are for borrowers who want the security of a fixed rate and those who plan to stay in their home for a while. Since the rate is locked in, changes in the market won’t affect your monthly payments.
It depends on the term. If you have a 30-year fixed mortgage, for example, you would make payments for 30 years unless you sell the home or refinance. If you refinance to a shorter term — a 15-year fixed, for example — you would pay your mortgage for 15 years.
The most common FRM terms are for 15, 20 and 30 years, and they typically require a down payment of between 3% and 20%.
If you took out a loan of $400,000 at 6.5% interest over a 30-year period, for example, you would have standard monthly payments of about $2,530. Different rates and terms will affect your payments:
| Home loan amount | Loan length | Interest rate | Monthly payment |
|---|---|---|---|
| $200,000 | 30-year | 5% | $1,074 |
| $300,000 | 30-year | 5% | $1,610 |
| $400,000 | 30-year | 5% | $2,147 |
| $200,000 | 15-year | 4% | $1,479 |
| $300,000 | 15-year | 4% | $2,219 |
| $400,000 | 15-year | 4% | $2,959 |
Generally, the longer the term of the fixed-rate mortgage, the lower your monthly payments and the more interest you’ll pay over the life of the loan. On the other hand, the shorter the loan term, the lower your rate and the quicker you’ll build equity in your home. Though your monthly payments will be higher with a shorter term.
The 30-year fixed-rate mortgage is one of the most popular types of conventional fixed mortgages. Keep in mind that, although your monthly payments may be lower, you’ll pay more interest over the life of the loan.
While a 30-year fixed protects you from changing market conditions that may increase your payments, it also means you’re unable to take advantage of lower interest rates unless you refinance.
A 30-year fixed rate mortgage can be useful when:
Although your monthly payments is higher with a 15-year or 20-year fixed rate mortgage, you pay less interest with a shorter loan term. You can pay off your loan sooner.
While a 20- or 15-year fixed-rate mortgage provides you with consistent interest payments for the life of the loan, your monthly payment works out to be around 10% to 15% higher than a 30-year standard fixed mortgage.
A 20- or 15-year fixed-rate mortgage may be useful when:
Banks use several factors to set the interest rate for fixed-rate mortgage products. The United States Federal Reserve determines the requirements your lender follows when it sets the interest rate.
Banks also take into account the prime rate and the level of competition within the market. Banks consider economic factors such as inflation, the demand for money throughout the country and stock market levels.
Though it depends on several factors and your personal situation, FRMs may be the best fit when:
A fixed-rate mortgage can provide you with security and stability, but if you’re not entirely sure if it’s a fit for your financial situation, compare a few mortgage options before making a decision.
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Hi, I would like to do a secured loan with the guarantee of two apartments that I own in Miami, FL. and Washington DC. I don’t live in the US, so I haven’t got an SSN but a visa B1/B2. I appreciate your consultancy. Best,
Hi Mariano,
Thanks for your question. Just to confirm if you’re looking for a secured personal loan? If so, non-residents can actually apply for a loan in the US, but you must meet the required paperwork and have a plan to continue working in the US for at least three years of the loan. A valid visa is also required like E1, E2, H1B, H2 A, H2B, H3, L1, G series, or 0-1. I suggest that you review our guide before you get in touch with a lender about your loan application.
Cheers,
May