Fixed Rate Mortgage

Many people automatically believe that they desire a 30-year fixed rate mortgage. They experience that this offers the upper limit peace of head for homeowner loans in that they forever cognize exactly what their mortgage payment will be, and their house is completely paid off at the end of the loan (anyone up for a “mortgage burning” party?). This is true, but it is actually very expensive for you to travel with the 30-year fixed rate option. Other programs offer a shorter length of clip at a fixed rate that tin save you many dollars of interest payments for lone a slightly higher mortgage monthly payment. A shorter length loan (still at a fixed rate) usually can be obtained at a slightly lower interest rate, and you construct up equity in the home much faster because of the higher monthly payment. Other common fixed-rate terms are 20 old age and 15 years.

The differences in the amount of interest that you will pay over the life of the assorted fixed-rate loan options can be staggering. Let’s expression at a $200,000 fixed-rate mortgage at different life terms:

Monthly Sum Interest

Term Rate Payment Paid over Life

30 old age 6.00% $1,199.10 $231,676.00

20 old age 5 3/4% $1,404.17 $137,000.08

15 old age 5 1/2% $1,634.17 $ 94,150.60

The difference in entire interest costs between Twenty old age and 30 old age is dramatic! For an further monthly payment of $205, you get a small spot lower interest rate and, more than important, you salvage $94,675.92 in entire interest payments – almost half of what you paid for the house to get with! If you can afford to pay $1,200 per month, you should be able to afford $1,400 each calendar calendar month – otherwise you are probably buying more than house than you can afford.

The buyer of your mortgage short letter will always terms the loan for their purposes. A fixed rate may not be the best deal for you. Are you positive that you will be life in this house for the length of the mortgage life? On average, a mortgage endures only about 7 old age because the borrower moves to a different house or refinances at a lower rate. Think hard and long before you lock into a fixed rate mortgage. Check out other types of loan options first. Depending on current interest rate structures, a fixed rate may be preferable to a variable rate – and vice-versa.

Happy home owning,