Fixed Rate Mortgages
Fixed Rate Mortgages
If you are in the market to buy your dream home, you will have many mortgage options available to you. One of the significant decisions you will make is whether to get an adjustable rate mortgage or a fixed rate mortgage.
How do Fixed Rate Mortgages Work?
The interest rate on a fixed rate mortgage remains unchanged throughout the term of the loan, which means the amount of your monthly interest and principal payments remain the same for as long as you have the loan.
The total dollar amount of the payment may increase but that would be a result of increases in taxes and insurance, both of which usually are included the mortgage payment.
If you would like the peace of mind that comes with a stable interest rate payment, then a fixed rate mortgage may be a great choice for you. Borrowers often choose fixed rate mortgages when interest rates are low and are expected to rise
30 year fixed rate mortgage
With a 30 year fixed rate mortgage, the monthly interest and payments are fixed and amortized over 30 years. This type of mortgage is often selected by borrowers who want the security of a fixed rate for a long period of time. Payments and interest rates are typically higher than adjustable rate mortgages.
30 year fixed mortgages are the most popular mortgage option that home buyers choose. In many instances, it is the wrong choice for them based upon their future plans.
20 Year and 25 Year Fixed Rate Mortgages
There are not many lenders who offer fixed rate mortgages with 20 or 25 year terms. Monthly principal and interest payments are fixed and are also amortized over 20-25 years. In reality, if you believe that you may be in the home for at least 20 years, then you may be better off just making additional principal payments over time to reduce the payoff period.
15 year fixed rate mortgages
Monthly principal and interest payments are fixed and amortized over 15 years. This type of mortgage is preferred by borrowers who want a fixed rate and the benefit of “rapid equity accumulation” through higher monthly payments.
The payments on a 15 year fixed rate mortgage are the highest of any of the fixed rate programs, however the interest rate is usually the lowest of all fixed rate loans except for the 10 year fixed rate loan.
A 15 year mortgage allows you to have the ability to payoff your mortgage must faster. However, you do get stuck with the higher payment and do not have the flexibility to make lower payments during tough financial times.
Who benefits from a fixed rate mortgage?
- Borrowers who want the security of stable fixed mortgage payments.
- Borrowers planning to stay in their homes for the long term.
- Borrowers who typically have a conservative approach towards home financing.
- Borrowers who want a simple, less complicated and unchanging mortgage payment.
Hopefully one of these loan options will help you to purchase your dream home.
Are the Interest Rates Different Between Fixed and Adjustable Rate Mortgages?
Adjustable rate mortgages tend to have rates that are a bit lower than fixed rate mortgages. However, you may find that the interest rate on an adjustable rate mortgage may be similar to that of a 15 year fixed mortgage.
Are there Pre-Payment Penalties with Fixed Rate Mortgages?
If you are buying a primary residence, then there will not be a pre-penalty for your fixed rate mortgage. However, if you are purchasing an investment property, then some of the fixed rate mortgage options
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