Buying a new house is exciting, but it is also a big commitment. Not only do you have to find a home that meets your needs, but you also need to find one within your budget. A mortgage loan provides you with the money you need to purchase a home upfront, but you will have to choose between loans with adjustable and fixed rates. Here’s what you need to know to determine if a fixed-rate mortgage is a right option for you.
What are Fixed-Rate Mortgages?
While many loans have adjustable interest rates that fluctuate over time, fixed-rate mortgages have locked-in rates that remain the same throughout the life of the loan. Regardless of the length of the loan, your interest rate will not balloon because it is fixed from the day you obtain the loan. If you like the current mortgage rates in NM, this could be an excellent option for you.
How Long Do I Repay a Fixed-Rate Mortgage?
Most fixed-rate mortgages have terms of 15 or 30 years. Depending upon which loan you choose, you have that length of time to repay the amount you have borrowed. If you obtain a 15-year loan, your payments will be higher than they would be with a 30-year loan, but you will end up paying less in interest. The loan length you apply for may also affect the amount required for a down payment, but you can apply for a down payment assistance program in NM if needed.
Regardless of the length of your fixed-rate mortgage, you can make extra payments each month to pay off the principal faster. If your loan terms include no prepayment penalties, you may also be able to pay off the interest. Doing so allows you to repay the entire loan before your term is up.
Types of Fixed-Rate Mortgages
There are three types of fixed-rate mortgages, and each comes with advantages and disadvantages. Consider each of the options below to determine which one is right for you.
- 5-year fixed-rate mortgage: This option is not an actual fixed-rate mortgage because it only locks your rate in for five years. It fixes your price for the first five years and then turns into an adjustable-rate mortgage, where the rate fluctuates according to the market. Because of how this type of loan is structured, it is a good option for people who only intend to live in the home for five years or less. The short-term fixed rates allow you to save money on monthly payments when it matters most.
- 15-year fixed-rate mortgage: If you can afford to make a larger payment each month, this could be the best option for you. Although the monthly payments will be more, you will end up paying less in interest over the life of the loan.
- 30-year fixed-rate mortgage: While you will pay significantly more money in interest over the length of the loan, this option offers much lower payments. It is the best option for people who intend to live in one home for an extended period because it provides stability.
Advantages of Fixed-Rate Mortgages
Loans with adjustable interest rates fluctuate, so you are not able to accurately set a budget. In contrast, fixed-rate loans offer the stability to plan your budget accordingly without worrying about having a higher payment next month. Most of these loans do not have pre-payment penalties and allow you to create a long-term financial plan so you can plan for the future.
Advantages of Fixed-Rate Mortgages
If you are interested in securing fixed-rate mortgages in New Mexico, contact Del Norte Credit Union today. We offer a variety of popular loan programs in NM to help you afford the home of your dreams. Begin the application process immediately so you can get started on the home-buying process as quickly as possible.