Fixed Mortgage Rate: Popular Loan Choice

Fixed rate mortgage is one of the most common types of mortgage offered by lenders in the business environment today. The basic characteristics of fixed rate mortgages include:

1) Static interest rates

2) Stable monthly payments (for a period of 15 years or 30 years)

The stability of a fixed rate mortgage makes it popular in the consumer market. Fluctuating interest rates in the market will eventually cause home loan payments to change the plans. When interest rates are low, fixed rate mortgages shall look very attractive due to their affordability. All buyers of fixed rate mortgages must choose between the 15-year and 30-year fixed rate mortgage. The 15-year fixed rate mortgage is popular because of the shorter pay-off time, while 30-year fixed rate mortgages are attractive due to the lower monthly payments.

There are some advantages and disadvantages to each type of fixed rate mortgage.

1) Advantages and disadvantages of 30 year fixed Rate Mortgage:

* Money can be borrowed on a long-term basis without the worry of changing interest payments.

* Monthly payments of a "30-year fixed rate mortgage" are lower than on a "15-year loan" because interest is amortized for a longer period.

* On the other hand, the total interest cost of a "30-year fixed rate mortgage" is much higher over the longer amortization period.

* Since early payments go mostly for interest rather than principal, equity in the home builds up gradually.

* The high interest rate of "30-day fixed rate" mortgage loans may not stop consumers from acquiring this type of loan. Higher interest bills for the 30-day fixed rate mortgages means the tax deduction for federal income tax liability is potentially increased, sometimes even eliminating completely any federal income tax liability.

2) Advantages and Disadvantages of 15-year Fixed Rate Mortgage:

* An attractive advantage for borrowers choosing a 15-year fixed rate mortgage is that the amortization period is usually shorter, allowing the 15-year fixed rate mortgage borrower to build equity at a faster rate.

* With a 15-year fixed rate mortgage, the total interest cost is low or at least much lower than the interest costs of a 30-year loan.

* Interest rates on a 15-year fixed rate mortgage are lower than those found on a 30-year loan.

* A disadvantage of a 15-year fixed rate mortgage is higher monthly payments, sometimes significantly higher, especially in comparison with those of a 30-year fixed rate mortgage.

* The acquisition of a 15-year fixed rate mortgage may require the home buyer to purchase a less expensive or smaller house than he might have been able to afford otherwise.

Further more, there is yet another attractive feature to consider when choosing the type of fixed rate mortgage. You can make an upfront payment for all of your monthly payments. This pre-payment is applied directly to the principal amount. This technique can save thousands of dollars of interest over the course of the mortgage and may result in significantly reducing the length of time required to pay off the fixed rate mortgage payment loan.