FIXED-RATE MORTGAGES

A Fixed-Rate Mortgage has an interest rate that remains constant during the term of the loan. Fixed-rate loans are the most common kind of financing because they provide predictability and stability — you won't be startled by the principle and interest charges in your monthly mortgage payment because they will remain the same throughout the loan period. (Your total monthly payment, which includes homeowners insurance and property taxes, may fluctuate somewhat due to changes in those expenses.) The most common kind of fixed-rate mortgage is a 30-year loan, although 20-year, 15-year, and 10-year loans are also available.

TYPES OF FIXED-RATE MORTGAGES

Conventional fixed-rate mortgages normally have slightly tighter approval standards, such as a minimum 620 credit score and a debt-to-income (DTI) ratio of no more than 43 percent, though there are occasional exceptions. Banks, credit unions, internet lenders, and other lending organizations make these loans available.

01. CONVENTIONAL

FHA, VA, and USDA loans offer fixed rates and fewer stringent standards than conventional loans. FHA loans are the most commonly available, while USDA loans are only available to certain rural applicants. VA loans are only available to military personnel, veterans, and qualifying family members.

02. FHA, VA, & USDA

A conforming loan adheres ("conforms") to Federal Housing Finance Agency (FHFA) standards, such as loan limit, that allow it to be sold on the secondary market. As long as a loan fits these requirements, it can be purchased and sold in order to keep money flowing through the mortgage market.

03. CONFORMING

Non-conforming loans, including jumbo loans, do not comply with FHFA guidelines. To qualify, you may have to pay a higher interest rate and meet tougher credit and cash reserve standards.

04. NON-CONFORMING

The great majority of fixed-rate mortgages are amortizing loans, which means your monthly payments cover both the principle and the interest. You begin generating equity in your house the day you begin repaying an amortizing loan.

05. AMORTIZING

Non-amortizing loans are far less prevalent, but they have an enticing feature: much reduced monthly payments that may only cover the interest for a limited time. When that benefit ends, though, you may be surprised with a balloon payment.

06. NON-AMORTIZING

PROS

Though your homeowner's insurance and property tax payments may vary, your mortgage payments will remain constant.
Your interest rate will also remain unchanged. You'll keep the rate you locked in when you got the loan, regardless of how rates climb or decline over time.

CONS

If you took out the loan while interest rates were high. If interest rates fall dramatically, you may always refinance the loan, but this may not be a realistic choice if you cannot pay refinance closing charges.
Fixed-rate loans might also be more difficult to qualify for than ARMs, so be sure you have all of your financial ducks in a straight before applying.
Fixed-rate loans may have higher monthly payments than ARM mortgages at first.