Fixed rate home loans are the most popular mortgage choice for Connecticut home buyers. Most fixed rate mortgages have a 15-year or 30-year term. This type of loan is also called a conventional loan, and it is the safest loan and the type that has been around longer than any other.
A fixed rate loan is a good choice when:
When you get a fixed mortgage, every monthly payment will be equal to the interest times the principal, along with some percentage of principal. Most payments go toward interest charges for the first few years, while the majority of your payments go towards principal as you approach the end of the loan term.
Fixed loans in Connecticut are a good option when you want a monthly mortgage payment that remains the same and never goes higher, and it can allow you to enjoy low interest rates for decades. Keep in mind that fixed rate home loans tend to have higher rates than adjustable rate mortgages (ARMs). If rates remain the same or drop in the future, the fixed loan will end up being more expensive. With a fixed loan, you will also build equity slower than with an adjustable loan because your first few years' worth of payments go toward interest more than anything.
Fixed rate loans are usually best if you plan to stay in the home for a long time. If you plan to sell your home in Connecticut within 5 to 10 years, an ARM will likely save you more money.
Along with choosing between a fixed and adjustable interest rate, you will also need to choose between a 15-year or 30-year fixed loan term. Each has benefits and drawbacks.
With a 30-year mortgage, you can borrow money for a very long time without risking that your rate will go up or your payment will change. 30-year mortgages have lower payments than 15-year loans, and you will have higher interest payments at first, which means more you can deduct on your taxes. The downside is you build equity slower than with a 15-year loan, and you will pay more in interest over the life of your loan.
With a 15-year loan, you build equity faster. You also have a lower interest rate and pay off the loan faster, which means far less in total interest charges. In exchange for these benefits, you will have a higher monthly payment.
When mortgage rates are very low, fixed rate loans usually make the most sense. A Connecticut fixed rate loan will be the best deal when rates are low, even if you do plan to move in the near future. Fixed loans are especially good if you want a predictable interest rate and payment, and you are willing to pay more in the long run for the security.
It can help to use a mortgage calculator to compare the long-term cost of a fixed rate versus adjustable loan.