Fixed-rate Mortgages
The fixed-rate mortgage
is the most common type of mortgage program where your monthly payments for
interest and principal never change. Property taxes and homeowners insurance
may increase, but generally your monthly payments will be very stable.
Fixed-rate mortgages are available for 30 years, 20 years, 15 years and even
10 years.
Fixed-rate fully
amortizing loans have 2 distinct features. First, the interest rate remains
fixed for the life of the loan. Secondly, the payments remain level for the
life of the loan and are structured to repay the loan at the end of the loan
term. The most common fixed-rate loans are 15-year and 30-year mortgages.
During the early
amortization period, a large percentage of the monthly payment is used for
paying the interest. As the loan is paid down, more of the monthly payment is
applied to principal. A typical 30-year fixed-rate mortgage takes 22.5 years
of level payments to pay half of the original loan amount.
Pros
·
Future
monthly payments are easy to project
·
Provides
stability if you plan to be in your home for a long time
·
If
interest rates rise, your payment remains the same
Cons
·
If
interest rates drop, your payment remains the same or you can refinance
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