A fixed-rate mortgage (FRM) is a house loan whose rate remains the same throughout the entire repayment period. In other words, the installments and duration of the financing don’t change, and you give a flat sum for each payment.
Fixed-rate mortgages have been around for quite some time and are also known to as conventional loans.
Types of Fixed-Rate Mortgages
There are three main types of fixed-rate mortgages, categorized by the duration of repayment as explained below.
5 Year Fixed-Rate Mortgages
Just like the name suggests, you will pay a flat rate with this type of mortgage for the first five years. It then converts into a flexible rate mortgage.
The main advantage of this type of fixed-rate mortgage is that the first amount of interest to pay is significantly lower than the one for a thirty-year arrangement. Perhaps the reason it is not so popular is that the amount to repay for the first five years could start to rise rapidly depending on the current rates.
Financial experts recommend that you take this loan only if you plan to pay or sell a house over the five years.
15 –Year Fixed-Rate Mortgage
This type is relatively popular due to its affordable repayment rates. While the interest is reasonable, this type of mortgage has higher repayments. Because of this reason, the risk of defaulting is slightly higher in case your income drops or fluctuates within the repayment period.
This is the most popular type of fixed mortgage rate, especially with new homeowners. While this class of mortgage attracts a higher interest rate compared with the other two types of fixed-rate mortgages, its monthly payments are the lowest since the loan repayment gets spread for an extended period. This may be a good option for families with low monthly income.
- You pay constant payments throughout the loan term
- Ideal for first-time homeowners and families with low incomes
- Relatively affordable compared to other forms of mortgages
- Interest rates are higher than an adjustable rate
- Equity is gained slower than with an adjustable rate loan
It is important to mention that in case the interest rates go up, there may be a significant increase in the monthly repayments when the fixed rate deal expires. Thus, it is advisable that you save some money on the side during the term of your fixed rate mortgage to help you meet any higher repayments.
Keep in Mind That You May Want to Sell the House in the Future
On the biggest mistakes that most new homeowners make is to ignore the fact that there needs may change from time to time. Besides, your preference may vary, and you may no longer want to live in your home.
It is, therefore, essential that keep your house in good condition just in case you may want to sell it in the future. Also, ensure that you can provide documentation to show that you are indeed the legit owner of the property.
And, speaking of good condition, here’s what you should do.
Clean, Clean, Clean
This almost goes without saying. No one will buy a house that is full of dust. Okay, some people will but not all of them. So, be sure to clean the fireplace mantle and polish your appliances. It makes perfect sense to hire a cleaning service if you have a busy schedule.
Don’t Ignore the Smell
The environment in and around your living space has to smell fresh. Avoid cooking food items that will fill the air with reek for days. In other words, the last thing that you want is a house that smells like a restaurant, especially if you’re trying to sell it.
Paint, Paint, Paint
You have to keep the walls of your house looking beautiful. Make sure that you get a fresh coat of paint every six months or so. Remember, the walls are the first things a potential buyer will look at when he or she enters the house. Also, ensure that the colors match your interior décor – it helps to bring a vibrant mood within your home.
Interior home designers recommend that you repaint your walls with neutral colors when selling your house. Sure, you may love your dramatic orange dining room, but it can turn off your buyer. Instead, opt for tones such as white and tans to enable buyers to focus on other aspects of your house.
The Bottom Line
Owning a home is exciting. Some people say that buying a house is one of the most significant investments that you will ever make. So make sure that you get things right from the get-go by choosing a mortgage option that fits your budget. Of course, you don’t want to end up forfeiting your home due to defaulting on the loan repayment.