Last week, I explained what an adjustable rate mortgage is, and when it could be an appropriate product. Today, I plan on explaining what a fixed rate mortgage is, and how fixed rate mortgages work.

Fixed rate mortgages have a set interest rate which will not change for the life of the loan. Prevailing interest rates can jump 10 points, and it will not affect your fixed rate mortgage one bit. Your monthly principal and interest payments will remain flat for the full term of the loan (usually 15 or 30 years), and when the loan ends, the house will be paid off.

This type of loan is great for borrowers who want a stable payment and a firm date for the loan to be paid off. You put the interest rate risk (the risk that interest rates will rise) on the lender, and you can sleep easy at night knowing that your mortgage payment should never change (unless your escrow changes).

But you do want to be careful when locking in a rate on a fixed rate loan; if you lock in during a high interest rate period, you will be stuck with a higher rate and have no ability to lower the rate without refinancing. Depending upon the size or the mortgage, even a slightly higher rate, say an eighth of a percent, can have a huge difference in the total amount paid for your new house.

So, if you are considering a fixed rate mortgage, please contact me so that I can help you find the best rate and terms for your home. And if you have anything to add about fixed rate mortgages, please leave a comment.