Fixed Rate Mortgages

This type of loan features a fixed interest rate that never changes over the loan term, which makes it easier to plan for mortgage expenses. Both principal and interest payments will be determined in advance, for terms ranging as short as 5 years to as long as 50 years. Fixed rate mortgages are the most classic form of loan for home purchases in the United States. The most common terms are 15-year and 30-year mortgages, but shorter terms are available, and 40-year and 50-year mortgages are now available (common in areas with high priced housing, where even a 30-year term leaves the mortgage amount out of reach of the average family).

Outside the United States, fixed-rate mortgages are less popular, and in some countries, true fixed-rate mortgages are not available except for shorter-term loans. For example, in Canada the longest term for which a mortgage rate can be fixed is typically no more than ten years.

This payment amount is independent of the additional costs on a home sometimes handled in escrow, such as property taxes and property insurance. Consequently, payments made by the borrower may change over time with the changing escrow amount, but the payments handling the principal and interest on the loan will remain the same.

Fixed rate mortgages are usually more expensive than adjustable rate mortgages. Due to the inherent interest rate risk, long-term fixed rate loans will tend to be at a higher interest rate than short-term loans.

The fact that a fixed rate mortgage has a higher starting interest rate does not indicate that this is a worse form of borrowing compared to the adjustable rate mortgages. If interest rates rise, the adjustable rate mortgage cost will be higher while the fixed rate mortgage will remain the same. In effect, the lender has agreed to take the interest rate risk on a fixed rate loan.

Other advantages to a fixed rate loan at North Star Home Lending include:

• Locking an interest rate while home shopping
• The opportunity to pay “points” to effectively lower the long term monthly payment
• The ability to adjust interest rates in order to reduce or eliminate closing costs
• Long term security with no substantial adjustments

Given recent changes, maximum mortgage amounts now vary by state. The maximum conforming mortgage currently in the State of Michigan is $417,000. Your North Star Home Lending loan officer can advise you of the conforming loan limit for any state in which you may have an interest.

Lately consumers have tended to favor fixed rate mortgages even more due to their level of consistency and minimal risk, as it yields a safer alternative for those seeking to buy a new home, or refinance existing variable debt. Recently lenders have come to favor granting fixed rate mortgages over variable due to the tightening of underwriting standards as it posses a lesser risk to them as well.

For further information, please contact your North Star Home Lending professional.