Fixed-Rate Loans

With fixed-rate loans, your monthly payment of principal and interest never change for the life of your loan. Your property taxes may go up (we almost said down, too!), and so might your homeowner’s insurance premium part of your monthly payment.  But generally speaking, with fixed-rate loans your payment will be very stable.

Fixed-rate loans are available in all sorts of shapes and sizes: 30-year, 20-year, 15-year, even 10-year. Some fixed-rate mortgages are called “biweekly” mortgages and shorten the life of your loan. You pay every two weeks, a total of 26 payments a year — which adds up to an “extra” monthly payment every year.

During the early amortization period of a fixed-rate loan, a large percentage of your monthly payment goes toward interest, and a much smaller part toward principal. That gradually reverses itself as the loan ages.

You might choose a fixed-rate loan if you want to lock in a low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can give you more monthly payment stability.

When considering a safer approach to your money, fixed-rate loans are generally the better option than say a variable-rate loan. The truth is that stability comes with a price but if you can afford it than it may be a good option for you. Be cognizant of what you think interest rates will do in the future and also what your capable of handling.

Pros:

  • Predictable monthly interest
  • Set monthly payment for the entirety of the credit
  • No surprised later when there’s an increase in interest

Cons:

  • May not be ideal for short term
  • The upfront costs to get started may be higher
  • When/if the rates come down, you must refinance or stay with your higher rate.

Classes of Fixed-Rate loans in Colorado

Home equity loans: This is a lump-sum home equity loan and more often has a fixed interest rate. Sometimes referred to as (HELOCs), these have variable rates. If you have a loan balance you may be able to change to a fixed rate.

Home Purchase loans: This is your standard “ole run of the mill” loan that features either a 30-year, 15-year mortgage at a fixed rate.

Auto loans: The majority of auto loans have an interest rate that is fixed throughout the entirety of the loan.

Personal loans: Many popular loan lender offer loans that have fixed interest rates. These types of loans can have either variable or fixed rates. Talk to your lender to find out what types of options you’re working with.

VA, FHA, USDA: All of these loans have fixed rates and lower restrictions that a conventional loan. Seeing as the true purpose is to allow more opportunity to the general population, FHA loans are widely available in the US. USDA loans are designated for rural parts of America. The VA in VA loan stands for Veteran Affairs and is reserved for military service or their surviving spouses.

Amortizing: Almost all of the fixed-rate mortgages on the market today are amortizing loans. In short, this means that the amount you pay every month goes toward both the principle and interest charges. You will be earning yourself equity back from day one with this type.

Non-Amortizing: You guessed it! This is basically the opposite of what we just went over. This type of credit is much less common. Although being less favorable they do have an appeal. The monthly payment is lower that only covers interest in a set schedule. When the expiration date comes you could get hit with a balloon payment. Yikes!

What is Fixed Rate Interest?

To put in simply, a fixed interest rate is a set amount that does not change for the life of the loan. For example, a 30 year fixed rate mortgage keeps the same interest rate for the entire 30-year period. The amount you pay each month is based on the interest rate. By keeping the rate static, you can set the principle and interest rate consistent for the term.

Lets paint a broad stroke here, generally speaking loans come in two forms: fixed and variable. Lets talk about variable first. This type can have an interest rate that can change in time. Even though the rate is fixed, it can still change after the first several years. There is an international standard called LIBOR in which the rates are based from.

Now you are already very familiar with the other loan type: fixed. We just covered it on this page!

Which ever decision you choose, we are here to help. Our goal is to provide our customers with as much information related to the financials of home buying as possible. This way, you will have a better understanding to base a decision with. At Sierra Pacific Mortgage, we value your time and want whats best for you throughout the entire home buying experience. If you shop with us we promise that you will feel right at home.

 


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