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What is a Fixed-Rate Loan?
While there are many mortgage products out there, home loans can be broken up into two main categories: fixed-rate and adjustable-rate mortgages (ARMs) and fixed-rate mortgages.
A fixed-rate mortgage locks in your rate for the duration of your loan. The most common loan term on fixed-rate mortgages is 30 years. However, fixed-rate loans can also be issued for terms of 15 and 20 years. The longer the amount of time the loan is spread over, the lower the monthly payment will typically be. At the same time, the longer the loan term, the more interest homeowners pay over the life of the loan.
Conversely, shorter loan terms usually mean higher monthly payments. Despite that, homeowners could end up paying significantly less over the life of the loan on interest and other mortgage-related fees by opting for a shorter term.
Still, homeowners have some flexibility in how quickly they pay off a fixed-rate, 30-year loan by simply paying more than their minimum monthly payments. They can also choose to refinance for a lower rate and shorter term down the line.
Why a Fixed-Rate Mortgage
Fixed-rate loans are preferred by many homeowners because they offer stability and predictability. That is, they know what their monthly payments will always be in the future. Other benefits of a fixed-rate loan include:
- Fixed interest rates make for easier budgeting
- Offer the flexibility of paying the loan faster if your finances improve, without prepayment penalties
- Guaranteed, fixed payments offer peace of mind
- Available from 9- to 30-year terms (15-year and 30-year are most common)
- Pay off some of the principal every month
- Protects you from interest rate increases if the market changes
Who Could Benefit from a Fixed-Rate Loan?
Fixed-rate loans are preferred by many homeowners because they offer stability and predictability. That is, homeowners know what their monthly payments will always be, allowing them to easily plan for their financial future.
However, lenders are currently offering competitive 30-year fixed rates that are comparable to or lower than ARM rates these days. Additionally, as current rates are at historic lows, it is unlikely that ARM rates will drop below the deal you’re getting with a fixed-rate loan.
Other benefits of a fixed-rate loan include:
Fixed-rate mortgages are less risky than ARMs. That’s because while ARMs may initially offer interest rates that are under the market value, those rates are not locked in for the life of the and can fluctuate depending on the state of the economy. So, a fixed-rate mortgage offers stability even when interest rates on home loans begin to increase.
Historically Low Rates.
Today’s interest rates are at near all-time lows right now, at about 2.3% on a 15-year fixed-rate mortgage and 3% on a 30-year fixed-rate mortgage.
Knowing your interest rate will stay the same from year to year can help you plan your budget accordingly. Other monthly costs (like private mortgage insurance (PMI) or property taxes) may change over the life of your loan. These should also be taken into account when aligning your housing budget with other living expenses.
Homeowners who are planning to stay in their residence for more than five years stand to gain the most from a fixed-rate mortgage. Those who don’t plan to keep a home beyond five years, on the other hand, may benefit from an ARM, since they would be eligible to pay a lower rate during the introductory rate period (which you can’t do with a fixed-rate loan).
What Are the Steps to Secure a Fixed-Rate Loan?
Once you have decided a fixed-rate mortgage suits your needs best, there are a few steps you’ll need to follow:
1. Apply with your lender.
Choose a lender like The Home Loan Expert that will be available to answer your questions at any time, and can walk you through the loan process efficiently and accurately. Make sure to check reviews for evidence of customer-service satisfaction. And be sure to clearly communicate to your lender that you are interested in a fixed-rate loan.
2. Gather the needed documentation.
To apply, your lender will need:
- W-2s (for the last two years)
- Recent pay stubs (covering the most recent 30 days)
- Complete bank statements for all financial accounts, including investments (for the last two months)
- Signed personal and business tax returns (all pages and relevant schedules)
- If you are self-employed, a copy of your most recent quarterly or year-to-date profit/loss statement
- A copy of the signed Purchase and Sales Agreement
3. Go through an appraisal and underwriting.
An appraiser will evaluate your property to give the lender an idea of how much the home is worth. During the underwriting process, your lender will verify your income, assets, debt, and property details. Once the underwriter has looked at your finances and assessed for risk, your lender will decide whether to give you a loan.
Remember, as a direct mortgage lender, The Home Loan Expert is able to ensure our process is streamlined from start to finish. Having the entire mortgage loan process contained under one roof allows us to quickly and efficiently close on your loan.
4. Close on your loan.
At the loan closing, be sure to bring your ID, have any outstanding questions prepared, and relevant contacts on standby. Be sure to bring the Closing Disclosure (a five-page, final accounting of your loan’s interest rate and fees, mortgage closing costs, monthly mortgage payment, and the grand total of all payments and finance charges). This form is issued at least three days before you sign the closing documents, and should be reviewed carefully. Once you have closed, you’ll begin making your monthly scheduled payments for your new loan!
How Can The Home Loan Expert Help?
The Home Loan Expert began as a simple idea more than 20 years ago: we wanted to get homeowners better refinancing opportunities to help them gain better financial footing. Since then, we’ve kept our promise and successfully expanded nationwide to provide refinancing services using expert loan officers from the same communities we serve.
Our humble beginnings of going door-to-door has resulted in a customer-focused team that continues to help our clients by providing top-notch customer service. Plus, our team is highly trained in the myriad of loan products available , so we can direct you to the best possible loan for your needs, including fixed-rate mortgages at competitively low rates. Whether you are looking to refinance from an ARM into a fixed-rate mortgage or from a fixed-rate mortgage to another fixed-rate mortgage with better terms or a lower interest rate, we can help.
Our team of friendly, professional lending Experts are ready for your call, and we’re also available to chat online anytime.
Learn About Other Loan Types
Adjustable Rate Mortgage
When you’re shopping for a new home, one of your most important decisions will be what kind of mortgage to take out to finance your home. Your mortgage type will be the top factor that influences how much you can borrow(and thus what kind and size of home you purchase), as well as your monthly budget moving forward. For a variety of reasons, an adjustable-rate mortgage (ARM) can be an appealing choice in the short term, but it can seem scary as well. However, it’s important to understand how ARMs work, since this type of loan has repayment terms that may become less desirable over time.
The home buying process can be overwhelming and stressful, especially if you’re buying your first home (or if your financial circumstances make it more difficult to get an affordable loan). For many home buyers, getting a loan insured by the Federal Housing Administration (FHA) can be extremely helpful in not only securing the necessary financing to buy but also achieving the dream of owning a home (even while facing tough financial situations). FHA loans allow lenders to make home buyers better deals, resulting in lower down payments, lower closing costs, and easier credit qualifying. Here, we’ll go over the ins and outs of FHA loans, including what they are, who qualifies, and what the process of securing one looks like.
While our offices are located in the heart of the cities that we serve, we also specialize in rural and agricultural markets—meaning we’re experts at handling USDA Loans. United States Department of Agriculture (USDA) Loans are an excellent, affordable option created just for people in small towns and rural communities. If you’re a would-be homeowner in a rural area, a USDA loan can be a great way for you to qualify for a mortgage that might otherwise be out of your reach! While there’s some straightforward,strict criteria regarding who can receive a USDA loan, don’t assume you are ineligible without checking–one of these loans can have a very positive impact on your home search.