A five-year fixed mortgage rate is less commonly used than other longer mortgages, but it offers lower interest rates and less money paid out over time. Find out how a five-year fixed rate mortgage can help you save money on your new home or refinance.
5-Year Fixed Rate Mortgage Explained
There are two major mortgage loan types: fixed-rate and adjustable-rate. An adjustable-rate mortgage, or ARM, has a fluctuating interest rate that may rise or fall every year. A fixed-rate mortgage, or FRM, has an fixed interest rate through the life of the loan. A five-year fixed mortgage rate is actually considered an ARM. Although its interest rate is locked in for the first five years, it varies after that term has ended.
How a 5-Year Fixed Rate Mortgage Saves You Money
Over the course of the five years of this fixed-rate mortgage, you’ll be able to pay off more of the loan with less interest. This will make a big difference in how much of your monthly payments go toward your loan instead of your interest, and you could potentially pay off the loan faster than before. Not only would you save more every month to pay off the loan faster, but you’d be saving a significant amount over the life of the loan. Consider a five-year fixed rate mortgage for the most savings possible at the start of your loan.
Finding the Best 5-Year Fixed Rate Mortgage
There are many ways to find the best five-year fixed rate mortgage. Check with your credit union or local bank for mortgage options, as these places usually offer multiple packages. Community banks will also be more flexible and work with your specific needs. Always shop around and get multiple quotes to get the best rate possible on your loan. Contact a mortgage broker in your area who can help you shop for options with multiple lenders.
Other Uses of a 5-Year Fixed Rate Mortgage
Five-year fixed rate mortgages work very well as a refinance option. For those looking to refinance their current loans to save even more money, check out these quick tips.
- Talk to your lender. They can calculate exact payments and how much you’ll save.
- Request that your payments only be applied to the principal of the loan.
- Always check for prepayment penalties.
Securing a Fair Rate for Your Mortgage
In order to really save, you’ll want to secure the best rate possible for your five-year mortgage. Make sure you’re prepared to put down at least 20 percent on your new loan. Provide proof that you have had reliable work for the past two years with an even debt-to-income ratio. Comparison shop with at least three lenders before deciding on a rate.