What is a Fixed Rate Loan?
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, meaning 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.
Benefits of a Fixed Rate Mortgage
A fixed rate loan's biggest benefit is that the interest rate does not change over the course of the loan. 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 maintain a monthly budget and providing you with greater 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:
- Competitive Rates
- Fully locked interest rate for the life of your loan
- Easy-to-understand loan terms and less paperwork
We offer flexible options and superior service, and will work with you from the application process through closing to ensure a smooth homebuying experience. Contact a Blackhawk Bank Mortgage Lender today!