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Payments on fixed-rate fully amortized loans are calculated so that the loan payment is equal every month and paid in full at the end of the term. In the early amortization period of the mortgage, a large percentage of the monthly payment goes towards the interest on the loan. As the mortgage is paid down, more of the monthly payment is applied toward the principal balance.
Advantages and Disadvantages of Fixed Rate Mortgage
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30 Year Fixed Mortgage
A 30 year fixed rate mortgage is the most popular type of loan when borrowers are able to lock into a low rate. The loan is amortized with equal monthly payments for a period of 360 months. A big majority of mortgages originated in the United States falls into this category. If you bought a house in the last 5 – 10 years, chances are, you opted for a 30-year mortgage loan. That’s easy to understand because the monthly payment is reasonably lower compared to shorter term mortgage loans. On the other hand, it takes a little longer to build equity on the property with a 30-year fixed mortgage as compared to a 15-year fixed mortgage loan.
Benefits:
- Lower monthly payments than a 15 year fixed rate mortgage;
- Interest rate does not go up;
- Payment does not go up, it stays the same for 30 years.
Drawbacks:
- Higher interest rate than a 15 year fixed rate mortgage;
- Interest rate stays the same even if interest rates go down.
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15 Year Fixed Mortgage
A 15 year fixed rate mortgage allows you to pay off your loan quicker and lock into an attractive lower interest rate. A small percentage of loans originated falls within this category when it comes to loans to buy a house. The monthly payment is considerably higher, due to its short-term nature, as compared to a 30-year fixed rate mortgage. The biggest advantage of a 15-year term is equity. The shorter term allows for equity to accumulate faster than a longer-term mortgage.
Benefits:
- Lower interest rate;
- Build equity faster;
- If interest rates go up, yours is fixed.
Drawbacks:
- Higher monthly payment stays the same if interest rates go down;
- Interest rate stays the same even if interest rates go down.
Is a 15-year term better for you or does a 30-year term suits your needs the best? There is no right or wrong answer to that. In fact, the answer lies within the borrower’s particular situation. Since no two borrowers are alike, these 2 options of 15 or 30-year term must be carefully considered when applying for a mortgage loan.
Whether a 30-year mortgage or a 15-year mortgage is best for you depends on your particular situation. For a confidential one-on-one needs analysis, please contact our Home Loan Specialists at (866) 772-3802 or use any of the tools on this website.
