Mortgage Financing Information: Fixed Rate Mortgage
The most common type of loan that lenders offer and buyers choose is the fixed rate mortgage. A fixed rate mortgage means that you lock in at a fixed rate and make equal monthly payments for a 15 year or 30 year period.
Most people choose the fixed rate mortgage because it offers stability. Interest rates are constantly changing in the market which makes people a bit cautious about getting a mortgage loan where the rates could change as well as the payments. If you can get a good rate when it is low then you can generally have a very affordable loan.
Most fixed rate mortgages come in either 15 year or 30 year loan periods. The people that choose for 15 years would rather pay off the balance as quickly as possible. People that choose the 30 year payment plan like the idea of having much lower payments over a longer period of time. There are advantages and disadvantages to both the 15 year and 30 year loan.
Many people like the idea of being able to borrow money for a longer period of time. The 30 year loan allows smaller payments to be made which allows people to have some money to spend on other things. Some home owners also wouldn't be able to make the higher monthly payments on 15 year loan because they don't have the income. Some people can only afford where they live if they pay it off over a longer period of time. However, because balance is amortized over 30 years you end up paying a lot more in the end. More interest is added over the extra 15 years which increases the total amount you pay. You are also building equity in your home at a much slower pace.
Many people who choose the 15 year fixed rate mortgage like it because the loan is only amortized over 15 years. This means that borrowers can build equity faster. In addition the overall amount of money that you pay is much lower because you do not earn as much interest. The interest rates are also much lower on a 15 year fixed rate mortgage. The major disadvantage would be the much higher monthly payments that are required. This may mean that you need to purchase a smaller house than what you would normally desire. If you chose a 30 year loan you would be able to afford a larger home.
There are other variations on the fixed rate loan, but these are the two main ones. Some people will do a prepayment on their fixed rate mortgage which reduces the principal amount more quickly and allows them to pay off their balance sooner than expected. But no matter what you decide to do make sure that you investigate into the mortgage loans that are available and choose the right one for you.