Fixed-Rate Mortgages

Fixed-Rate Mortgage Topics Covered

What is a Fixed-Rate Mortgage?

A fixed-rate mortgage features an interest rate that remains constant throughout the life of the loan. This means your monthly payment of principal and interest stays the same over time, providing predictability and stability for your budget. Because of this consistency, fixed-rate mortgages are the most popular type of home financing.

These loans can be conventional or backed by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).

Fixed-rate mortgages are defined by the loan amount, interest rate, compounding frequency, and loan term. Using these factors, your monthly payment can be calculated.

Each monthly payment includes both interest and a portion of the principal. As you pay down the principal over time, the interest portion of your payment decreases while more of your payment goes toward the principal. This means early payments are mostly interest, while later payments primarily reduce the loan balance.

Both borrowers and lenders face certain risks with fixed-rate mortgages, typically related to changes in the overall interest rate environment.

Types of Fixed-Rate Mortgages

Amortized Fixed-Rate Mortgage – One of the most common mortgage options offered by Texas lenders, this loan features a fixed interest rate for the life of the loan and consistent monthly payments. Lenders generate an amortization schedule, which is easiest to calculate with a fixed-rate loan because the interest for every payment is known upfront. The key feature of a fixed-rate mortgage is that your interest rate remains the same for each installment from the moment the loan is issued.

5-Year Fixed-Rate Mortgage – Maintains a fixed interest rate for the first five years before converting to an adjustable-rate mortgage. The initial rate is usually lower than that of a 30-year mortgage, making it attractive for short-term homeowners. However, after five years, the rate may rise depending on current market conditions, so this loan works best if you plan to sell your Texas home within that timeframe.

15-Year Fixed-Rate Mortgage – Offers lower interest rates and allows you to pay off your loan faster than a 30-year mortgage, helping you build equity more quickly. Monthly payments are higher, which can increase the risk of default if your income changes, but this option is ideal for borrowers seeking faster equity growth and long-term savings on interest.

Biweekly Fixed-Rate Mortgage – Accelerates loan payoff, reduces total interest costs, and shortens the term. You make 26 biweekly payments per year (equal to 13 monthly payments), often with the option to convert to a 30-year fixed-rate loan. Payments are usually automatically deducted from your checking or savings account, making it a convenient way to pay down your mortgage faster.

30-Year Fixed-Rate Mortgage – The most affordable conventional option for many homebuyers. While the interest rate is higher than shorter-term loans, spreading payments over 30 years lowers the monthly cost, making it ideal for long-term homeowners or lower-income families looking to maximize purchasing power.

Advantages of a Fixed-Rate Mortgage

With a fixed-rate mortgage, you don’t have to worry about rising payments like you might with an adjustable-rate loan. Your interest rate stays the same, regardless of changes in mortgage rates, economic conditions, or your personal financial situation.

Fixed-rate mortgages also offer flexible term options. Many loans come without prepayment penalties, allowing you to make extra payments toward the principal at any time. This can shorten your loan term and reduce the total interest you pay over the life of the mortgage.

Drawbacks of a Fixed-Rate Mortgage

With a fixed-rate mortgage, the principal is paid off more slowly in the early years, as most of your initial payments go toward interest. If interest rates decrease, you would need to refinance to take advantage of a lower rate.

Frequently Asked Questions

What are mortgage points?
Mortgage points, also called discount points, allow you to prepay interest in exchange for a lower mortgage rate. Each point equals 1% of your home’s purchase price, and typically reduces your interest rate by about one-eighth to one-quarter of a percent.

How can I improve a low credit score?
You can raise your FICO score by paying bills on time, reducing credit balances, and limiting the frequency of new credit applications.

What’s the difference between pre-qualified and pre-approved?
Pre-qualification is an estimate of the loan amount you may qualify for, usually determined through an interview with a licensed Texas loan officer. Pre-approval, on the other hand, requires a formal application and verification of your credit and financial history. Receiving a pre-approval certificate puts you in a stronger position to close quickly and negotiate a better price.

What is the alternative to a fixed-rate mortgage?
The main alternative is an adjustable-rate mortgage (ARM), where the interest rate on the outstanding balance can change over the life of the loan.

Texas Fixed-Rate Mortgages
A fixed-rate mortgage is ideal for Texas borrowers who plan to stay in their home for several years, offering predictable monthly payments and long-term stability.

Adjustable-Rate Mortgages (ARMs)
ARMs combine fixed and variable rates. They often start with a fixed rate for the first few years, followed by a variable rate for the remainder of the loan. While they typically follow an amortization schedule, payments can vary once the rate adjusts. ARMs may offer lower initial payments and can be a good option for borrowers who plan to move within a few years.

While many homeowners prefer the security of a fixed-rate mortgage, ARMs can be a suitable choice depending on your plans and financial situation. It’s important to review all options and select the mortgage that best fits your needs.

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Notice To Texas Loan Applicants: Consumers wishing to file a complaint against a mortgage banker, or a licensed mortgage banker residential mortgage loan originator, should complete and send a complaint form to the Texas Department of Savings and Mortgage Lending, 2601 North Lamar, Suite 201, Austin, TX 78705. Complaint forms and instructions may be obtained from the department’s website at www.sml.texas.gov

A toll-free consumer hotline is available at 1-877-276-5550. The department maintains a recovery fund to make payments of certain actual out of pocket damages sustained by borrowers caused by acts of licensed mortgage banker residential mortgage loan originators. A written application for reimbursement from the recovery fund must be filed with and investigated by the department prior to the payment of a claim. For more information about the recovery fund, please consult the department’s website at www.sml.texas.gov