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Fixed Rate Mortgage

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The most common type of mortgage lenders offer is a traditional fixed rate mortgage. These are loans that have a fixed interest rate on your monthly payments for the life of the loan, which is typically 10, 15, 20 or 30 years. With these types of loans your monthly payment will remain the same the entire duration of the loan, although other cost like insurance and taxes may go up. People like the thought of a fixed rate loan because they have the assurance of paying the same each month with no surprises. They might also feel that as their income goes up through raises or better career moves, their house payment will stay that same and the additional money can be used elsewhere. If you have decided that this mortgage is best for you then you are now faced with the decision of how long you want your loan life to be. Here are the advantages and disadvantages of both 15 and 30 year loans.

• 15 Year Fixed Rate Loan Advantages: With this type of loan, interest rates are typically lower than 30 year loans, you will pay much less in overall interest than on long term loans, and you can built up equity quicker due to shorter amortization schedules.
• 15 Year Fixed Rate Loan Disadvantages: Some disadvantages to a shorter loan are that monthly payments will be significantly higher than longer term loans and borrowers might have to settle on buying a smaller/cheaper house in order to afford the higher monthly payments.
• 30 Year Fixed Rate Advantages: With a longer loan your monthly payments will be much lower freeing up some extra money that you can put into home improvements, savings, college funds, etc. and the more interest you pay on a mortgage the more money you will be able to deduct off your federal tax income.
• 30 Year Fixed Rate Disadvantages: Because the interest rates are so much higher than shorter loans, it will take more time to build up equity because payments for the first few years will go to paying the interest instead of the principal. Of course, choosing a longer loan means paying more interest than you would with a shorter one in the long run.

The choice between a 15 and 30 year loan basically boils down to how much you can afford, how much house you want, and how much money you are willing to spend.

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