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A fixed rate mortgage offers an interest rate that will never change over the entire life of the mortgage. Fixed-rate mortgages (also known as FRMs) offer the same interest rate, monthly principal and interest payment throughout the entire term of the mortgage. The longer the length of the mortgage, the lower the monthly payments and the more cash you'll have for other expenses. With a shorter term mortgage, you will have higher monthly payments and you will qualify for a smaller mortgage amount, but you'll save on interest costs over the life of the mortgage and build your equity faster. The fixed-rate mortgage loan is the "traditional" choice and is still the most popular because it offers stability and predictable monthly mortgage payments. The monthly principal and interest payment is fixed over the life of the mortgage. This type of mortgage offers you the security of a fixed interest rate so you will always know exactly what your mortgage payments will be. Your mortgage payment options are limited with this type of mortgage, but you're protected when interest rates rise. The length (known as the term) of your fixed rate mortgage can be 15, 20 or 30 years. These mortgage terms have an affect on the various benefits you'll get from your mortgage.
The ideal person for a fixed-rate mortgage:- " Prefer regular mortgage payments with no surprises " Are on limited or fixed incomes " Plan to stay in their homes a long time so are able to have a long mortgage term " Are purchasing or refinancing a mortgage at a time when interest rates are comparatively low.
30-year fixed-rate mortgage - The 30-year mortgage term gives you the maximum tax advantage by having the greatest interest deduction. While the fact that you are paying more interest on the mortgage may not seem like a benefit, you make lower mortgage payments with the longer term fixed-rate mortgage and you get a bigger tax deduction. If you will be staying in your home for many years (especially if you think your income may not increase tremendously), this may be the best mortgage option. This type of mortgage is also the easiest to qualify for.
20-year fixed-rate mortgage - You can shorten your mortgage by 10 years and usually get a lower interest rate with the 20-year mortgage. These mortgages are not offered through as many banks and mortgage lenders, however, so you may have to shop around to get one. The advantage with the shorter term mortgage, besides paying your loan off sooner, is that you will also have more equity in your home sooner than you will with a 30-year loan. Your mortgage payments will be higher, however.
15-year fixed-rate mortgage - This mortgage term has the same benefits as the 20-year term (i.e., quicker pay-off, higher equity, lower interest rate), but you will also have a higher monthly mortgage payment.
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