Three Benefits Of A Fixed-Rate Mortgage

Applying for a home loan is a monumental moment in a person’s life. It represents a new chapter of maturity, financial stability, and wealth building. However, buying a home can also feel like learning a foreign language. What the heck is a fixed-rate, variable-rate, and jumbo loan anyway? Mortgage terminology can be a little off-putting for first-time homebuyers, but we promise, it’s not as complicated as it sounds. The truth is that most new home buyers will opt for a fixed-rate mortgage. A fixed-rate mortgage is a home loan option with a specific interest rate for the entire term of the loan. This means the mortgage rate will not change over the lifetime of the loan; thus, interest and principal payments will remain the same each month. Here’s why fixed-rate mortgages are one of the most popular home loan types in the US. 

3 Pros Of Fixed-Rate Mortgages

Makes Budgeting Easy

The main benefit of a fixed-rate mortgage is stability. With a fixed-rate mortgage, your monthly mortgage payment will remain the same throughout the life of the loan. This is ideal for people who don’t want big fluctuations in their housing payments. A reliable payment amount is also helpful when budgeting for other expenses. 

It’s worth noting, however, that if your homeowners’ insurance premium or property taxes go up or down, your monthly payments may change to reflect those differences. Many lenders tack on those costs to hold in an escrow account. When property taxes or insurance payments are due, they then pay those for you. The downside is if your state property tax shoots up next year, your payment will too.

Potentially Lower Payments 

Fixed-rate mortgage loans have a term of 15-30 years typically. If you have a 30-year fixed-rate mortgage, your mortgage will be paid off in 30 years, including all interest, taxes, and fees. The nice thing about having a fixed-rate loan is that you can clearly see how much interest and principal you will pay over the life of the loan. Additionally, because those costs are stretched out over 15-30 years, your monthly payments are a bit lower.

The 30-year mortgage is the most popular choice of term because it offers the lowest monthly payment. However, the overall cost of the loan is higher because you spend more time paying interest.

Flexible Terms

If you’re considering any fixed-rate mortgage term, consider what’s important to you. Do you need lower monthly payments? Or would you like to pay off your loan faster and with less interest? If you’re a first-time homebuyer, you may need lower payments. Conversely, if you’re in your forever home, you may want to pay down your balance faster so you can retire debt-free. 

Other loan terms include 20-year loans, which help borrowers save interests with lower payments than a 15-year term. 

The best part about getting a fixed-rate mortgage is that you have the freedom to choose your loan term. As with other types of mortgages, you have the option of an adjustable or fixed-rate mortgage with a VA purchase loan.

Which Loan Is Right for You?

When choosing a mortgage term, you need to look at your current and future financial position. 

Ask yourself questions like:

  • How do you expect your income to change over time? 

  • How large a mortgage payment can you afford today?

  • How long do you intend to live on the property?

  • In what direction are interest rates heading, and do you anticipate that trend to continue?

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Bottom Line

Mortgage lingo can be confusing for newcomers or even those that have been out of the real estate game for a while. Although there are many home loan types to choose from, fixed-rate mortgages offer many attractive advantages to buyers. Fixed-rate mortgages provide financial stability and mortgage payment predictability, which is ideal for buyers on a budget. 30-year fixed-rate mortgages are especially popular because they offer the lowest monthly payment to buyers. Lastly, fixed-rate mortgages provide flexible terms for homeowners that may want to pay down their balance faster (or have lower payments). 

VA loan applicants can select fixed-rate terms that suit their lifestyles. MHS Lending is an approved VA lender specializing in VA Home Loans. These loans allow eligible servicemen or women, veterans, and some military spouses the opportunity to buy a home using benefits reserved exclusively for military members.

Get started on your VA loan journey here.