Understanding Fixed-Rate Payment Installment Loans
Are you scared of your loan getting out of hand? Fixed-rate payment installment loans are ideal for being predictable and not giving you surprises. You have a set payment amount that will remain the same throughout the set repayment duration.
With these loans, you know exactly how much you are borrowing, how much you will be paying, and how long you will be paying it off. This article will run you through everything you need to know about fixed-rate payment loans.
What Loans Have Fixed-Rate Payments?
There are a variety of installment loans that offer you a fixed-rate payment. The common ones include mortgage loans, small personal loans, and car loans.
In these loans, the total amount due remains the same throughout the life of the loan. However, the proportion of the payment that goes to the interest and principal may vary. This is where fixed-rate payment and adjustable-rate payment come in.
Banks usually offer fixed-rate payments for mortgage loans with a slightly different interest rate.
How Does This Method Work?
When you get a mortgage loan, you may be asked to choose between a fixed-rate mortgage loan or an adjustable-rate mortgage loan. Adjustable-rate mortgage loans are also called floating rate loans and may have a slightly lower interest rate.
You will also be asked to choose between a 15-year or a 30-year term. If you are a veteran or getting a Federal Housing Authority (FHA) loan, you may get a slightly lower rate as these loans have additional mortgage insurance that protects against a default payment.
You may be tempted to go for an adjustable-rate loan as, historically, these loans have lower starting interest rates compared to their fixed-rate counterparts. You can even get a lower introductory rate when interest rates are low.
However, when this introductory period ends, the bank will raise the repayment rate to match the increasing interest rates in the market. It is a strategy by banks to offer lower introductory rates when they anticipate a rise in interest rates after the initial period.
Since the housing crisis of 2008, the gap between fixed-payment rates and variable-rate loans has hovered below 5% and is practically insubstantial. You are better off with the predictable rates of fixed-rate payments for mortgage loans instead of the variable rates of adjustable-rate loans.
Choosing the Right Loan
If you are looking to buy a home, you want to ensure the best loan for your situation. For fixed-rate payment loans, your payment rate remains the same every month. This is ideal for easier budgeting of expenses as your expenses are predictable.
However, you should also note that the proportions that go to pay off the principal and interest may change every month. The earlier payments are made up of more interest than the principal. As you pay longer, the interest payments decline, and the principal costs increase. This is the loan amortization.
If you are looking at buying a new home, you are probably thinking about getting a fixed-rate payment loan. With fixed-rate payment loans, your repayment remains the same every month. This is ideal for easier budgeting of expenses as your payments remain predictable.
To get the best loan for your situation, you need to evaluate your options. If you like the predictability of fixed-rate payment loans and are confident that your income will not change, you are a good candidate for fixed-rate loans.
Are you looking for installment loans in Center Point, AL? Parkway Finance Company makes life a little easier with simple installment loans. Apply for your loan today!