Why get a fixed rate mortgage is easy to answer…
That answer is, if you want your principal and interest payment to remain the same throughout your term, you need to get a fixed rate.
The Advantages…
The fixed-rate mortgage loan is the most advantageous for most borrowers. The monthly payment for interest and principal remains fixed throughout the mortgage term. Property Insurance and taxes may increase but the monthly repayment of the interest and principal amount will be stable.
As you pay your payment on a fixed-rate loan, your interest payments will slightly decrease and the principal amount you are paying will increase as the years go by. The less principal of your mortgage remaining, the less interest due each month on the mortgage.
During the early payment period, a large amount of the payment goes to the interest with small amounts to the principal. Fixed-rate mortgages are available for 10 years, 15 years, 20 years, and 30 years period.
Fixed-Rate Mortgage Loans Have Two Distinct Features
The fixed-rate 30-year mortgages and 15-year mortgages are more popular and SAFER than the Adjustable Rate Loan.
- Fixed-rate mortgages have two distinct features, first, one is that the interest rate remains the same throughout the term of your mortgage.
- The second feature is that payment of the loan remains level for the life of the loan. The total payment of principal and interest does not change. However, if your escrows for taxes or insurance change/increase, it will increase the total payment.
With interest as low as it is, some people opt for a 15-year mortgage loan which is an excellent choice if your other obligations are not substantial. This is the better objective if you plan to stay put for a long time and want to build your equity fast and pay off your loan early.
30-Year Loan Versus 15-Year Loan
The advantage of a 30-year mortgage is that compared with a 15-year mortgage the monthly payments are less and more affordable for most. However, with a 15 year fixed rate loan you can obtain a lower interest rate over the life of the loan. The 30 year is a slightly higher interest rate.
Let’s highlight this: If you have planned for a long-term loan and do not like to take risks, you may opt for a 30-year fixed-rate mortgage, and still, make additional payments to the principal of the loan at any time. This also means that you can pay off your loan early. Lenders will allow you to pay as much principal payment as you want to pay and can afford.
Important: One important point to remember is that just because you have paid a principal reduction, you cannot miss a mortgage payment when it is due. Most lenders will allow you to pay an extra $50, +- or for that matter…any amount, on the principal payment of the loan in each payment if you choose.
The regular payment must be paid as normal as the mortgage terms state. On the first day of the month, each month for the term of the loan. However, you can pay your payments ahead of schedule. A mortgage lender will allow you to pay two payments at a time of both interest and principal.
This is an example of a 30-year loan paying off in 30 equal payments of principal and interest only. **This is principal and interest only payment and does not contain escrows of taxes and insurance. Those amounts can be added via the calculator on the right. *You can also input the lower of the sale price or value of the home, show the down-payment, the percentage of taxes estimate, and insurance.
**Also note that this calculator allows you to see the “Amortization Schedule” and print it.
200,000 Loan amount x 360 months x 4.000% = $954.83 as you can see with the calculator or this page.
200,000 Loan amount x 180 months x 3.500% = $1429.77
Why Get A Fixed Rate Mortgage can be a simple choice. However, there are instances that might change your focus to an Adjustable Rate sometimes call variable rate mortgage loan.
The Adjustable Rate Mortgage Loan
The ARM is a loan for those who want the very lowest rate possible. One reason for this is that the applicant(s) may not intend on staying in the home for a long period of time. It may be they are transferred frequently within their career, or they intend upon buying a larger home, downsizing, or another reason.
The interest rate changes depend upon the characteristics of the adjustable-rate loan. The initial period depends upon the ARM product your choose. The 5/1 ARM will adjust for the first time in 5 years, and then every year following. There are also 3/1, 5/1, 7/1, and 10/1, ARM plans. Each has very different variables as stated. There are several types of adjustable-rate mortgages.
*Please note that guidelines for mortgage lending change frequently, sometimes daily. We try to focus on the latest guidelines but there could still be different parameters than discussed here.
