Fixed-Rate Loans
When you take out a loan, your two options are a fixed-rate loan and an adjustable-rate mortgage. If you get a fixed-rate loan, you'll be paying it off at an interest rate that remains the same throughout the life of the loan. That means the amount you pay each month for principal and interest will never change. The specific rate you are offered is a result of the lender's assessment of your loan application — putting less money down is one action that usually results in a higher interest rate. Borrowers with better credit scores are offered lower rates than those with problems on their credit reports.
Loans are made by combining components. A fixed-rate loan can be conforming or nonconforming. It can be a conventional loan, an FHA loan, or another loan type. A loan can be made for different lengths of time and carry different interest rates. You'll find that lenders will juggle loan components to come up with a package that suits your needs.
The length of the loan period also affects rates. Loans for a period of ten or fifteen years have lower rates than loans for longer terms, such as a thirty-year mortgage. Payments for a shorter-term loan are naturally higher, because you have less time to repay the debt, but the combination of higher payment and lower interest rates allows borrowers to build equity much faster than they can with a longer-term loan.
If you have a fixed-rate mortgage, and interest rates go up, your payment does not increase, so it's easier to plan your long-term budget. If rates dip, you'll have to refinance the loan to decrease your payments and the amount of interest you pay on the loan.
