FIXED RATE MORTGAGES
A fixed rate mortgage is a loan where you pay the same interest rate for the whole duration of the loan. Generally fixed rate loans are for about thirty years, but you can also get them for 20 or 15 years. You’ll usually get a lower interest rate if you have a 15 or 20 fixed rate mortgage; maybe a half a percent lower than a thirty year loan. The total monthly payment in a 15 – 20 year fixed rate mortgage will likely be higher than a longer term loan because you’ll have to make larger payments to pay off the loan within the shorter period of time. A benefit of a short term loan is that you’ll pay less in the long run than you would with a longer period loan. A longer mortgage will give you lower monthly payments, but if you can afford the higher monthly payments, you’ll end up saving quite a bit of money and build equity quicker if you do a shorter fixed rate mortgage. As an example: The interest paid overall for a $150,000 mortgage over 15 years at 6.1 percent, paying $1274 per month is $79,300 total in interest. The interest paid overall for a $150,000 mortgage over 30 years at 6.6 percent, paying $962 per month is $117,000 total in interest. A benefit of having a fixed rate mortgage is that your monthly payments stay consistent through the life of the loan. This makes your loan easier to plan around, and easier to understand. One difficulty in having a fixed mortgage rate is that it is not easy to take full advantage of dropping interest rates. If you wanted to do this you’d have to refinance, resulting in more costs and paperwork. Another con is that if mortgage interest rates are high they can be costly because there are no initial mortgage rate cuts. Furthermore, a fixed rate mortgage loan is quite standard between lenders so there is not much room for custom designing your loan.