Fixed-Rate Mortgages

Fixed-Rate Mortgages

Fixed-rate mortgages – also called conventional mortgages – have been the most popular home loans for decades. The interest rate on a fixed-rate mortgage stays the same throughout the life of the loan, as opposed to adjustable rate mortgages (ARMs), in which the interest rate may adjust or “float.” Fixed-rate mortgages allow for repayment of a debt in equal monthly mortgage payments over a specified period of time, called an amortization period. At the end of the amortization period, which can last anywhere from 10 to 50 years, the loan will be paid in full. Because a 30-year amortization period is the most common, the 30-year fixed-rate mortgage has become the industry standard in the United States. For the first few years of a 30-year mortgage, most of your monthly payment goes toward interest, but toward the end of the loan period, much of your monthly payment goes toward principal. What Determines 30-Year Fixed Mortgage Rates? Interest rates on 30-year fixed mortgages are driven by 1-year, 5-year, and 10-year Treasury Note yields, which are auctioned to the highest bidder. At the end of the note’s term, the U.S. Government pays back full face value to the bidder, so in effect, bidders are loaning the bid amount to the U.S. Government. In return, they get the interest rate and the full face value on the note. As a result, the interest rate on a 30-year fixed mortgage is usually just slightly higher than that of the 30-year Treasury Bond at the time…

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