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Written by Administrator
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Saturday, 28 November 2009 01:04 |
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Lenders offer several types of mortgages, but the most common are fixed-rate mortgages. These loans feature fixed rates and monthly payments, generally for 15-year and 30-year periods.
They're popular because:
1. Consumers balk at the thought of their house payment rising and falling with interest rates.
2. Whenever rates are low, fixed-rate mortgages are very affordable.
Fixed-rate borrowers face one major choice: 15-year or 30? For some, a 30-year loan makes more sense. For others, a 15-year one does. Here are some pros and cons of each.
Fixed rate advantages:
- Offers the chance to borrow money on a long-term basis without having to worry about the interest rates or payments changing.
- Monthly payments are lower than those on 15-year loans because the interest is amortized over a longer period.
- Lower monthly payments free up money that borrowers can pour into investments that yield more than their homes.
- Higher interest bill increases the amount consumers can deduct at tax time, potentially reducing or eliminating their federal income tax liabilities.
Fixed rate disadvantages:
- Borrowers build equity at a very slow pace because payments during the first several years go largely toward interest rather than principal.
- The overall interest bill is much higher because of the long amortization term.
- The interest rates are higher than on 15-year loans.
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Fixed Rate Mortgage
