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What You Should Know About a Fixed-Rate Mortgage Loan

Many homebuyers have heard about some of the more exotic home loan options out there, such as interest-only loans, FHA loans, and adjustable-rate mortgages (ARMs), but there is another loan that you might want to know about: the conventional loan, or fixed-rate mortgage. It’s probably not as exciting as some of those other options, but it’s certainly one worth considering if you can qualify for it. Here’s what you should know about the tried-and-true conventional mortgage.

1: Your house payment never changes

The fixed-rate mortgage, as its name implies, is a loan with a single interest rate that remains the same throughout the life of your loan. With a fixed interest rate, your lender will set a specific payment that you make each month to pay toward both the principal and interest on the loan. In the beginning more of this payment will go toward interest, then over time it will shift so you are making a larger portion of that payment toward the principal balance.

2: Your total payment might change

Just because the payment on the principal and interest never changes, though, doesn’t mean that your total payment will never change. Most lenders today will include a few different items in your monthly “mortgage” payments:

  • Principal
  • Interest
  • Property taxes
  • Homeowners insurance premiums
  • Homeowners Association (HOA) fees

The first two will remain constant for all 360 payments (on a 30-year loan), while the other three might go up or down depending on your property. If your payment changes on a fixed-rate mortgage, it’s because one of the latter three items has changed.

3: The initial interest rate might be higher

One of the main drawbacks that homebuyers see with fixed-rate mortgages is the fact that the initial rate is likely higher than that of an ARM. However, the ARM will likely increase after about three to five years, and can continue to go up if market rates increase during the life of the loan. If interest rates go up, your payments go up accordingly, which can squeeze some homeowners financially if they are not prepared for it.

4: There are different loan lengths available

Fixed-rate loans are often available as 10-, 15-, or 30-year loans. As a general rule, the shorter loan lengths will have lower interest rates and you will pay less total interest on the home over time, but your payments will be higher. Shorter loans also mean you will pay off the house sooner and have no mortgage payment. Talk to your lender and review your personal financial situation to find out which might be the best option for you. 

5: You’ll need a down payment

In order to qualify for this type of loan you will need a down payment, usually between 10 and 20 percent of the total purchase price of the loan. If you don’t have that much to put down, talk to your lender about other options that are available.

If you think a conventional loan is right for you, talk to your Salt Lake City mortgage lender today to find out whether you can qualify.

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