The conventional fixed-rate mortgage loan guarantees borrowers that the interest rate and principle payment will remain unchanged throughout the life of the loan because the rate is fixed and not attached to an open market index. The most recognizable fixed-rate loan is the 30-year mortgage; however, a fixed-rate loan also can be spread across 10, 15, 20 or 40 years.
It should come as no surprise that a longer loan term will reduce monthly mortgage costs but also will increase the total cost of the loan over the life of the term since the borrower would have to pay an additional 10, 15 or 20 years worth of interest.
The interest rates available for fixed-rate loans tend to be higher than the rates offered through some of the more creative financing options such as an adjustable-rate mortgage loan. This is because the fixed-rate also fixes the lender’s profit and increases their risk by extending the loan term.
The fixed-rate loan is a good choice for homebuyers who aim to secure a lowest possible monthly mortgage payment, plan to stay in the home for the long term and prefer the financial predictability provided by the fixed-rate.
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