The benefits of the fixed rate mortgage

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The benefits of the fixed rate mortgage
3 years ago
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New homeowners have so many options when it comes to obtaining a mortgage for their home. They can obtain an adjustable rate mortgage, an interest only mortgage, a fixed rate mortgage, two mortgages, or a balloon mortgage. Plus, even within these options, an entire plethora of options exists as far as interest rates, terms, and more.

However, the fixed rate mortgage is not only the traditional mortgage of choice, but also, it is the mortgage with the fewest surprises. It can be viewed as the steady runner in the race who maintains the same pace throughout the event.

In the first place, the monthly mortgage payment never changes, until perhaps the very last one. The borrower simply pays the same amount month after month after month. The borrower never has to wonder how much the monthly payment is going to go up, because it isn?t. Nor is he going to have to worry about not budgeting enough money to pay the mortgage, because he always knows how much he needs.

A portion of each payment in a fixed rate mortgage goes toward the principal balance of the mortgage and a portion goes toward the interest due on the mortgage. The last payment might be slightly less or more, depending on closing fees, etc.

Additionally, the fixed rate mortgage realizes a steady increase in the amount of the payment that goes toward the principal balance of the loan, steadily increasing the equity in the home. Plus, as the percentage of the mortgage payment that goes toward the principal increases, the percentage of the payment that goes toward the interest charges decreases.

No surprises pop up throughout the course of the fixed rate mortgage. Common terms for this type of mortgage include: 15, 20, 25, and 30-year terms. However, 35 and 40 years terms are becoming more popular as the purchase price of homes has steadily risen over the last few decades. Selecting a shorter term leads to a quicker payoff with a lower amount expended on interest charges, while selecting a longer term leads to a smaller monthly payment and a greater amount of money spent on interest over the years.
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