What are Fixed Rate Mortgages
Standard Fixed Interest Rate Loans Available - Fully Amortized
These are your standard fully amortized loans. Your principle
and interest payment will not change over the course of the loan, as
your interest rate is guaranteed not to move for the life of the loan.
- 40 and 50 year fixed -Starting
to be offered quite a bit more now that home prices have risen to
such high levels. This is usually not a good choice for the
borrower as the payment difference between the 30 year fixed and the
40 or 50 year fixed is quite small, it's usually not worth the extra
10 or 20 years of payments. Having said that, the average homeowner
these days moves or refinances every 5-7 years and if the slightly
lower payment makes the difference between getting the house of your
dreams or losing it then this could be the loan for you.
-
30 and 15 year fixed -These are the two most common
loan types offered to homebuyer's when choosing a fixed rate
(payment) for the life of the loan.
- 25, 20 and 10 year fixed
These three fixed rate loans are not as well known by
homebuyer's and are not offered very often by the industry unless
the homebuyer requests it or circumstances dictate it.
Interest Only 30 year Fixed Loans
- 10/30 - Interest Only first 10 years
- 15/30 - Interest only first 15 years
Interest only 30 year fixed
mortgage loans have
been around for awhile now and have quickly started to become favorites
of consumers. This program is like your standard fixed rate
product in that your interest rate will be guaranteed for 30 years, but
you have the "choice" of making interest only payments for the first
10-15 years depending on whether you choose the 10/30 or 15/30 loan (you
can choose to make additional principle payments at any time).
When your interest only payment option ends it becomes fully
amortized for the remainder of the loan. This means that if you
choose the 10/30 and made nothing but interest payments for the first 10
years your loan would then turn into a fully amortized principle and
interest loan for the next 20 years. Now since you still owe the
same amount you did 10 years ago your payment will rise substantially
because you now have only 20 years to payoff the loan.
However, before you decide this loan is or isn't for you, take a look
below at the reasons you may want to choose interest only 30 year fixed
loans:
- The vast majority of borrowers these days only keep a loan for
5-7 years; choosing to either move or refinance before then.
- The lower interest only payment helps many first time home
buyers with the ability to use the extra money saved every month to
afford the many things they will need when buying their first home.
- Most borrowers even if they choose to keep the loan far beyond
the 10 or 15 year interest only period will have higher salaries,
allowing them to make those higher principle payments easily.
- The principle that would have been paid off during those first
years is relatively low considering the size of the loan.
Example - A $300,000 thirty year 6.0% fully amortized loan
with a principle and interest payment of $1800 a month would only
reduce the principle by the following amounts:
| 3 Years |
5 Years |
10 Years |
| $12,000 |
$21,000 |
$49,000 |
- Every time your home increases in value you gain equity.