Fixed rate mortgages remain the most
popular form of mortgage loan. Fixed rate mortgages have an
interest rate that does not change over the life of the loan. The
loan payments are spread out over a fixed term of years,
typically from 15 to 30 years.
A longer loan term will the lower the loans monthly payment. However, the longer term will increase the total interest paid over the life of the loan. Fixed rate mortgages are offered under conventional, FHA, VA, jumbo and non-conforming loan programs.
Advantages: Dont worry... be fixed
The single most appealing characteristic of a fixed rate mortgage is its simplicity. Your total principal and interest payment does not vary for the term of the loan. Regardless of future interest rate changes, your payment will only change to reflect adjustments in your property taxes and insurances that are included in your payment.
Disadvantages: Whats not to like?
The biggest disadvantage to fixed rate mortgages is that you will pay a higher interest rate for fixed rate simplicity. Mortgage loan interest rates will differ by the loans term length and by the type of loan. You may have noticed that fifteen-year loans have lower rates than thirty-year loans. Adjustable rate loans have lower rates than fixed rate loans. The longer the time that the interest rate remains fixed, the higher the interest rate on your loan will be.
Other considerations: Why pay more for unused time?
Statistically speaking, the average mortgage loan is paid off in 5 to 7 years. This is not due to everyone winning the lottery. Several events result in the early payoff of a loan: selling a home or refinancing an existing loan.Several factors should be realistically analyzed when selecting a mortgage loan:
If interest rates are lower relative to recent years rates, it may be a good time for a fixed rate mortgage. On the other hand if rates are higher than in recent years, rates may ease downward over the next few years and you may be able to afford a larger home or refinance your current mortgage to a lower rate. In a relatively high interest rate environment taking advantage of an ARM may save you a lot of money for the length of time you have the mortgage outstanding.
Considering these factors when choosing a mortgage loan may save you thousands of dollars while also avoiding the possibility of an interest rate change.
When selecting a mortgage loan, make sure you are matching your expected time in the home with the loan product offering the best terms for that time frame.