Fixed Rate Mortgage FAQs
In this section you will find answers to the
most frequent questions we receive about fixed rate mortgages.
If you have a question we do not address, please ask us
directly! Please check our Mortgage
Terms Glossary for commonly used mortgage terminology.
What is a fixed rate mortgage?
What is the advantage of a fixed rate mortgage?
Are fixed rate mortgages more expensive than adjustable rate mortgages?
Can I pay my fixed rate mortgage off early?
A fixed rate mortgage is a mortgage in which the interest rate is fixed for the life of the loan.
With an interest rate that never changes, it provides stable, predictable monthly payments throughout the life of the loan. You have the security of knowing the exact amount you will repay each month. Fixed rate mortgages can be good for anyone who needs the stability of a set monthly payment.
Fixed rate mortgages are usually more expensive than adjustable rate mortgages. Due to the inherent interest rate risk, long-term fixed rate loans will tend to be at a higher interest rate than short-term loans. The difference in interest rates between short and long-term loans is known as the yield curve, which generally slopes upward (longer terms are more expensive). The opposite is known as an inverted yield curve and is relatively infrequent.
The fact that a fixed rate mortgage has a higher starting interest rate does not indicate that this is a worse form of borrowering compared to the adjustable rate mortgages. If interest rates rise, the adjustable rate mortgage cost will be higher while the fixed rate mortgage cost will remain the same. In effect, the lender has agreed to take the interest rate risk on a fixed rate loan. Some studies have shown that the majority of borrowers with adjustable rate mortages save money in the long term, but that some borrowers actually pay more. The price of potentially saving money, in other words, is balanced by the risk of potentially higher costs. In each case, a choice would need to be made based upon the loan term, the current interest rate, and the likelihood that the rate will increase or decrease during the life of the loan.
In most cases fixed rate mortgages offer the ability to prepay principal early without penalty. Early payments of part of the principle will reduce the total cost of the loan, and will shorten the amount of time needed to pay off the loan. Early payoff of the entire loan amount through refinancing is sometimes done when interest rates drop significiantly.
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