A consistent monthly payment is one of the main advantages of a fixed-rate mortgage. This can help you plan your budget while providing peace of mind if your financial picture changes in the future.Predictability is an important factor for many people when buying a home. You may choose a fixed-rate mortgage if you prefer the security of knowing your monthly payment will stay the same over the life of your loan.With a fixed-rate mortgage, you will pay more for your loan if you choose a longer term, but your monthly payments will be lower. Here are some key facts and considerations to think about with a fixed-rate mortgage:
How it worksThe most common fixed-rate mortgages come with a 15- or 30-year term. Your monthly payments are the same over the life of the loan.The primary difference between a 15- or 30-year term is the size of your monthly payment and how fast you build equity in your home. With a 15-year mortgage, your monthly payments will be 50 to 60 percent higher than a 30-year mortgage, but you will pay off the mortgage in half the time and pay less interest overall. A 30-year mortgage offers a lower monthly payment, which may be easier to maintain. The tradeoff? You’ll pay more interest for your home over the long haul.
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Is it the right choice for you?It’s a good idea to think about your long-term goals when choosing the kind of mortgage that’s best for you. Everyone’s situation is unique, so evaluating your personal circumstances and goals will help you decide whether a fixed-rate mortgage makes sense:
- Do you plan to be in this home for a long time? Are you settled into a career? Are you active in your local community? Do you have a growing family and want to make this area your permanent home? A fixed-rate mortgage is generally a good option if your goal is to set down roots in this home.
- What will help you achieve your long-term financial goals? Many people choose a fixed-rate mortgage because it helps them plan their monthly budget and finances. The consistency of a fixed monthly mortgage payment can also help you save money for other goals, such as retirement or your child’s education. A fixed-rate mortgage can make it easier to focus on these other important financial goals.
- Balancing your monthly payment vs. overall cost of your loan. Think about the flexibility you have in your personal budget. Can you afford a higher monthly payment? If so, you may want to consider a shorter term, 15-year fixed-rate mortgage. You’ll pay less in interest over the life of the loan and own your home that much faster. But financing for a longer term, while costing more overall, lowers your monthly payment and can provide peace of mind if your finances ever change unexpectedly.