Borrowers commonly encounter two types of mortgages: the fixed-rate mortgage and the adjustable-rate mortgage.
The fixed-rate mortgage has a multitude of term options that vary from 10 to 30 years. Regardless of your preferred length, the interest rate remains the same for the length of the mortgage. This makes the fixed-rate mortgage a popular choice for homeowners who prefer a stable, budget-friendly monthly payment.
The advantage of the fixed rate mortgage is that the payment is the same each month. This predictability makes it easier to plan your budget. You don’t have to worry about future higher payments like you do with an adjustable-rate mortgage. You pay off a little of the principal each month. That automatically increases your home equity. That’s unlike an interest-only loan.
You can make extra payments to pay off your principal earlier. Most fixed-rate loans don’t have pre-payment penalties. It’s also a great loan if you think interest rates will go up over the next several years. That’s because your rate is locked-in.