Like the name implies, a fixed rate loan is a loan where the interest rate and payment remains the same throughout the entire duration of the loan, unlike an adjustable rate mortgage loan where the interest rate may reset periodically.
A fixed rate loan is generally used to purchase big-ticket items like a new car, a boat or a home. In fact, fixed rate home mortgage loans are the most popular option for homebuyers in the United States. This is because a fixed loan offers a consistent monthly payment amount over the life of the loan.
Often, a fixed loan may have a higher interest rate than an adjustable one precisely because the interest rate remains constant for the loan's duration. As a general rule, longer term loans will have a slightly higher interest rate than loans of shorter duration due to interest rate risks or the possibility of rate adjustments over the loan's duration.
The loan is fully amortizing, and this means that the interest and principal you owe are fully paid at the end of the loan term. Part of your monthly payment repays some interest, and the rest covers your principal. In the early years of your mortgage, most of the payment goes to interest, but after a set period, most will go to the principal. Fixed rate mortgages do not have associated margins, caps, or indexes because the rate isn’t adjustable.
Mortgage products come in many varieties based on:
Interest rate: In addition to fixed-rate mortgages, there are variable-rate or adjustable-rate loans, with interest rate and payments that adjust based on changes in the market. Other types include interest-only, balloon-payment, pay-option, and negative-amortization mortgages. These home loans are rarely used.
Term: A mortgage term is the length of time you have to repay the loan. We offer fixed rate mortgages.
Important Factors that Affect Your Mortgage Rate
Mortgage interest rates can significantly affect the total long-term cost of purchasing your home. And as you seek the lowest possible rates, it pays to know the factors that can determine the rate you are offered:
Your credit score- Your credit score shows how reliable you will be in paying your loan and is calculated based on your credit history, including your credit cards, loans, and payment history. A higher score is associated with lower risk.
Home price and loan size- Home loans that are smaller or larger than ordinary tend to be more expensive.
Down payment- You may get a lower interest rate if you have a larger down payment.
Term- Your mortgage’s term or duration also impacts your interest rate in a way that shorter terms have lower interest rates than longer-term loans.
Type of mortgage- Conventional, VA, USDA, and FHA loans typically have slightly lower rates compared with loans that are not backed by the government.
Interest rate type- With ARMs, the interest rate may be lower at the initial stage than with a fixed-rate mortgage but can rise or fall after the introductory period depending on changes in the market.
A fixed rate loan's biggest benefit is that the interest rate does not change over the course of the loan. In an environment of rising interest rates, this can offer security in terms of budgeting for your monthly expenses because a fixed rate loan option provides a consistent, predictable monthly payment. Your interest rate and principal payment remains constant throughout the length of the loan.
If you're planning on making home improvements or a cash-back refinancing of your home, Blackhawk Bank offers a number of fixed rate options, including a fixed rate home equity loan. This means you can lock in the interest rate and principal payment for your home improvements, making it easier to keep to your monthly budget and providing you with peace of mind.
Fixed-rate mortgages are easier to understand, and this makes shopping easier. Also, the loans offer some form of security since your payment stays the same even when the economy slumps, you get a divorce, or lose your job. With an extension of up to 30 years, first time home buyers in Illinois are offered lower payments, making it possible to qualify for a bigger loan
At our Blackhawk Bank branches in Southern Wisconsin and Northern Illinois we offer fixed rate loans that provide:
Fully locked interest rate for the life of your loan
Easy-to-understand loan terms and less paperwork
Speak with one of our team members to apply for a fixed rate mortgage or home equity loan today. We offer flexible options and superior service to help you pick the perfect loan for your Southern Wisconsin and Northern Illinois needs. We work with you from the application process through closing to ensure a smooth process.
We'll even work with you to create a loan program that will meet all of your financial needs and goals. Are you ready to get started?
Click here and start the application process today!