How to Calculate a Fixed Mortgage Rate
Calculating a Fixed-Rate Mortgage
Calculating your fixed mortgage rate can help you prepare your budget to accommodate your dream home. It's relatively simple to calculate your fixed mortgage rate using an online mortgage calculator, but if you'd rather do it the old fashioned way, here are the steps:
To change the annual rate to a decimal number, divide it by 100
Take the resulting decimal figure and divide it by 12
Voila! You have your monthly fixed mortgage rate
So if your annual rate is at 6%:
To change your 6% to a decimal, divide it by 100 to get: 0.06
Then take 0.06 and divide it by 12 to get your monthly fixed mortgage rate of 0.005
Your monthly fixed mortgage rate is 0.5%!
Calculating your fixed mortgage rate is simple and easy. Understanding this ensures that you’ll never have to trade the security of a steady monthly principal and interest payment. With a fixed mortgage rate, this rate will be consistent for the entirety of your home loan. (Finally, something predictable in your budget!)
Fixed Mortgage Rates and Term Lengths
But what is the right term length for your circumstances? Making the right choice involves thinking about and calculating the total interest you’ll be paying over the years. The total cost of interest on a 30-year loan is still higher than the interest on a shorter-term home loan. With a commonly used 30-year home loan, you have lower monthly payments, but your interest rate will be higher. With a 15-year loan, the opposite would be true. You would have higher monthly payments, but your interest rate would be lower.
Lenders will give you the flexibility to lock in your rate for any term between 10 to 30 years. Think you can afford to pay it off faster? Some lenders will happily work with you to establish 7 or 8-year terms. Doing this will save you thousands of dollars in interest payments.
After you lock in your interest rate for your home loan, market fluctuations won’t affect it. Paying the same monthly principal throughout the years is preferred by many home buyers. If you expect your income to only have incremental increases in the years ahead, then the fixed mortgage rate is definitely for you. There are no surprises. Paying your home mortgage should not be stressful. Fixed-rate mortgages can help you guarantee this. They are the most frequently sought out loans for a reason! This type of loan caters to traditional home buyers like families and individuals who plan to stay in their homes for a long time.
Calculating your fixed mortgage rate using our online mortgage calculator or by our tips above, will determine your exact monthly payments. By making sure that your income and savings can meet this same monthly payment, you will successfully own your home. With the right tools and information, home ownership will be a smooth and secure process.