With more lenders offering five-year fixed-rate mortgages than ever before, it’s easier than ever to lock in a mortgage for five solid years, that said, not all are created equal and before you shop around and settle on the first lender who offers you their fixed-rate mortgage, take a look at the pros and cons of each type so that you can find the right fit for your unique financial goals, here we’ll explain what a fixed-rate mortgage is, how they work, which types are available today, and how to secure one to meet your long-term financial goals.
What is a Fixed Rate Mortgage?
It is a loan with a specific interest rate, which remains the same for the term of the loan, unlike a variable rate mortgage, where the rate fluctuates with the market, a fixed-rate mortgage offers a predictable return for the borrower, the rate you’re offered is by far the most important factor in securing the right mortgage terms; it’s important to note that it is ideal for borrowers who won’t be affected by fluctuations in interest rates and if you have a long-term fixed-rate mortgage, it’s because you don’t want to be affected by any short-term interest rate fluctuations if you can lock in a rate that’s as low as possible, but still meet your financial goals, then the best 5 year fixed rate mortgage is an excellent choice for you.
How Does a Fixed Rate Mortgage Work?
Fixed-rate mortgages have one important thing in common with variable-rate mortgages: The interest rate on both types of loans is the same when you take out the loan, what’s different is the length of the loan and how you pay it back- a fixed-rate mortgage stays with you for the duration of the loan — usually five years — and you’re required to make payments every single month that cover both the interest and the principal.
After making payments for five years, if your loan payment is still due, you can either pay off your loan or make additional payments, if you pay off the loan, you’ll save yourself a lot of money and the loan will be completely out of your life or if you make additional payments, you lengthen the amount of time it takes to pay off the loan, but you’ll also increase the amount you owe; if you can lock in a low rate and know you’ll be making loan payments for five years, a fixed-rate mortgage is the ideal sort of loan for you.
Which Types of Loans Are Available Today?
A variety of lenders are offering fixed-rate mortgages these days, which is great news for consumers who want to secure a five-year fixed-rate mortgage, there are a variety of lenders and loan types to choose from and the most common types include jumbo, conventional, and high-interest rate loans; on a jumbo loan, the lender allows you to take out a loan with an amount greater than the average home price in your area, which increases the amount of the loan.
A conventional loan is similar to a regular home loan in that you make payments to the lender each month, but the interest rate is lower than that of a variable rate mortgage, a high-interest rate loan is a little bit different from the other types of loans because it comes with a higher interest rate and a longer repayment period than the other types of loans.