What is a fixed-rate mortgage?
A fixed-rate mortgage is a mortgage with a constant interest rate over a set loan term.
Factors like homeowners insurance and property taxes might nudge your total monthly payment up or down a bit. However, the principal and interest portion stays the same, allowing you to budget for your mortgage payment more confidently. Each month, you know exactly what you’re paying with no surprises.
How do fixed-rate loans work?
With a fixed-rate mortgage, your interest rate will stay the same from the moment your rate is locked in. A few key factors shape your interest rate, including:
- Your credit score
- The term of your loan
- Your down payment size
- Other important criteria
Once your rate is set, your lender gives you an amortization schedule, a breakdown dividing your monthly payments into parts that chip away at the principal amount and the interest. The amortization schedule helps ensure your loan is completely paid off by the end of your mortgage term.
30-year vs. 15-year fixed
The choice between a 30-year and 15-year fixed mortgage boils down to what’s good for your wallet and what’s good for your future.
A 30-year fixed mortgage offers lower monthly payments spread over a longer period. While your monthly bill will likely be more affordable, you’ll end up paying more in interest over time. Still, a 30-year term could feel more manageable if you need wiggle room in your budget or have other plans for your money on the horizon.
Typically, a 15-year fixed mortgage has a lower interest rate. While the monthly payments may be higher, you could pay off your home in less time and save a significant amount on interest. A 15-year loan term often works best if you can afford the higher monthly payments and want to build equity quickly and own your home outright sooner.
Check out today’s current rates to compare loan terms and find what works best for you.
Fixed-rate mortgage loan limits
The loan limits for fixed-rate mortgages can vary depending on your area and type of loan.
For example, many fixed-rate mortgages are conforming loans, which are a type of conventional loan. The Federal Housing Finance Agency (FHFA) sets the loan limits for conforming loans each year. In high-cost areas, loan limits may skew higher than average.
Fixed-rate mortgage requirements
Whether you're a first-time home buyer or looking to refinance, understanding the ins and outs of fixed-rate mortgages can help you feel better prepared before applying. Let's get started!
Fixed-rate mortgage loan interest rates
Lenders set interest rates by considering a blend of broader economic conditions and your personal financial details. They often start with the big picture, like the economy's overall health and benchmark interest rates, such as U.S. Treasury yields. Next, lenders factor in their own costs and the competitive landscape to make sure their rates are attractive. Your credit score, debt-to-income ratio, the size of your down payment, amongst other factors also come into play.
All these elements help the lender decide on a rate that reflects both the market conditions and how risky they perceive the loan to be.
PRO TIP:
Ensure you explore all promotions and discounts available by lenders you are exploring for your mortgage. For example, through Citi’s Mortgage Relationship Pricing program, new and existing Citi banking customers can enjoy a discount on closing costs or interest rates. Not a customer? No worries—you can open an account at the time of applying and still reap these benefits. Even having just one dollar in your account can make you eligible for a discount on closing costs.
Fixed-rate mortgage loan down payments
Typically, fixed-rate loans require at least a 5% down payment, which is a portion of the home's purchase price that you pay right away.
While it might seem like a big effort to put more money down initially, it's an investment that can lead to significant savings in the long run. Your down payment affects everything from your monthly payments to whether you’ll need private mortgage insurance (PMI).
A higher down payment often means lower interest rates and smaller monthly payments because you’re borrowing less money. A bigger down payment also boosts your home equity sooner. Equity is the part of your home you truly own: the value of the property minus what you still owe on the mortgage. The more equity you have, the more options you’ll have for borrowing in the future, should you need to.
In the eyes of lenders, a substantial down payment also makes you look like a safer bet, which could lead to quicker loan approval and more competitive rates.
PRO TIP:
Wondering what your monthly costs would be? Use our Mortgage Calculator to figure out your monthly payment for a fixed-rate mortgage.
Fixed-rate loan mortgage insurance
If your down payment is less than 20%, you'll probably need to budget for private mortgage insurance, or PMI. PMI is a safety net for your lender in case things don’t go as planned and you can’t make your payments. The cost of PMI can vary—it’s typically between 0.3% and 1.5% of your loan amount annually and influenced by your down payment and credit score.
PMI is usually rolled into your monthly mortgage payments, until you’ve built up 20% equity in your home. At that point, you can ask your lender what’s required to drop the PMI.
Fixed-rate mortgage loan credit score
In general, a higher credit score will increase your chances of getting approved and securing a lower interest rate. Most lenders require a minimum credit score of 620 for conventional fixed-rate mortgages. If your score isn’t quite there yet, don’t worry! There are plenty of ways to give it a boost. Focus on paying down your debts and making sure your payments are on time.
Fixed-rate mortgage home loan DTI
Debt-to-income ratio (DTI) is another important factor lenders consider. DTI is the ratio of your total monthly debts, including your future mortgage payment, divided by your gross monthly income. Most lenders prefer a DTI ratio of no more than 43%. If your DTI is higher than this, it might be a good idea to tidy up your finances before applying for a mortgage. If you’d like to estimate your DTI ratio, check out our DTI calculator.
Fixed-rate mortgage income requirements
Lenders will want to verify your income to ensure you can afford your monthly mortgage payments. The income level lenders look for depends on the loan amount, your other debts and your living expenses. Be ready to provide recent pay stubs, W-2 forms or tax returns for proof of income when you apply.
Fixed-rate vs. adjustable-rate mortgages
Fixed-rate mortgages are different from adjustable-rate mortgages. Compare their features here and understand the benefits of both.
| Feature | Fixed-rate mortgage | Adjustable-rate mortgage (ARM) |
|---|---|---|
Interest rate stability | Consistent for life of loan | Lower initial rate, then variable |
Monthly loan payments | Unchanging | Variable after initial period |
Rate fluctuation protection | Long-term cost savings by avoiding fluctuating rates | Rate adjustment caps limit how much interest rates can increase |
Recommended For | Buyers seeking financial stability | Buyers planning to move or refinance in near future |
Applying for a fixed-rate mortgage
Here are some steps you should expect to take if you decide to apply for a fixed-rate mortgage.
1. Check your credit score
Start by checking your credit score as it plays a crucial role in determining the interest rate you'll receive. A higher score could help you secure a better rate.
2. Gather required documentation
Prepare necessary documents that lenders typically ask for, including recent pay stubs, tax returns, employment verification and details about your debts and assets.
3. Get pre-approved
Consider obtaining a pre-approval, like the Citi SureStart® Pre-Approval, which not only clarifies how much you may be able to afford, but also comes with a firm commitment to lend. A pre-approval tells sellers that you’re a serious buyer—pretty handy when house hunting in a competitive market!
4. Choose the right mortgage
Make sure a fixed-rate mortgage suits your needs. Fixed-rate mortgages offer stability as your interest rate remains the same for the entire term of the loan. However, if you’re planning to move within a few years, the initial low interest rate of an adjustable-rate mortgage might be appealing.
5. Submit your mortgage application
Once you’ve found your dream home and the right mortgage type, complete the application form and submit it along with your documents.
6. Loan processing and approval
The lender will process your application, conduct a credit check and arrange for a home appraisal to confirm the property’s value.
7. Closing the loan
If your application is approved, the final step is the closing process, where you'll sign the loan documents, pay any remaining closing costs and finalize the mortgage.
Ready to explore your options?