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Fixed Rate Morgage Definition and Advice
A Fixed Rate Morgage describes a type of loan wherein the Interest Rate does not change
through out the entire amortization term of the loan. Though there are exceptions (such as
certain types of Fixed Rate Interest Only loans) the payments of Fixed Rate morgages remain
the same through out the life of the loan. The effect is that the balance is reduced with each monthly
payment made so that the loan is completely paid off by the end of the amortization term.
In comparison to Adjustable Rate Morgages the Fixed Rate deals generally have higher interest rates.
However, many people prefer paying slightly more each month for the security of knowing that their
payments will never rise. This makes fixed rate morgage offers the most popular among consumers.
Common Fixed Rate Morgage Deals:
Fifty Year Morgage: This deal is normally offered by subprime lenders so as to make higher interest rates
more affordable. The trend of fifty year terms has really spread through out the industry over the past
few years. This is not only because people enjoy the lower payments but also has because it is the only
way many people with less-than-perfect credit are able to qualify for a loan. Again, this is generally not a
term available to borrowers that fall within 'A-Paper' guidelines.
Forty Year Morgage: This program has greatly increased in popularity over the past couple of years. Many
homeowners appreciate the security offered by fixed rate morgages coupled with the lower payments
resulting from an increased loan term. Refer to our Calculator page (follow the link at the top of the page)
to compare the payments on a forty year term versus a thirty year term. If you are doing a comparison,
however, our advice is to note that forty year terms usually have a slightly higher interest rate
(.125% to .25%).
Thirty Year Morgage: This is the traditional term that most people find effective in terms of managing
the debt of their home purchase. With payments spread out over thirty years the payments are more affordable
than, for example, a fifteen year term. However, it is not such a long amount of time that true home
ownership seems impossible or otherwise out of reach. Basically, it allows you to afford a nicer home
for less money than with a fixed rate program with a lesser term.
Twenty-Five Year Morgage: This option has the same rate as the thirty year program but is amortized over
five less years. This saves five years worth of interest and really helps some people feel as though
they are moving closer to their goal of home ownership when refinancing (rather than going right back into
another thirty year fixed rate morgage).
Twenty Year Morgage: This loan is traditionally offered at the same rate as the thirty year term. It saves
interest not on account of having a lower interest rate but rather because you are paying interest for less
payments than with a traditional thirty year term. This is a viable option for those looking to refinance
but would like to move closer to the goal of debt-free home ownership.
Fifteen Year Morgage: This is a wonderful option for homeowners that are able to afford the higher monthly
payments that come with paying off a mortgage in such a short amount of time. The fifteen year option
allows you to save a ton of money on interest for two reasons. First, if you compare interest rates on the
the fifteen year term to the thirty year term you will find that the fifteen year term always has a lower
interest rate. Secondly, you save on interest because you are cutting out fifteen full years of interest
payments. These savings make it very appealing for those people that are serious about owning a home
and paying as little as possible in terms of interest.
Ten Year Morgage: This fixed rate program is not very common. It offers the same benefits as a fifteen year
term but they are magnified: you pay less interest and pay off the loan very quickly. Of course, the payments
are higher than other options simply because you're paying it off in less time. Note that the ten year term
normally has a rate identical to the fifteen year fixed rate morgage.
FIXED RATE COMPARISON: Payments for a $250,000 mortgage
40 year fixed at 7.125% = Payments of 1576 with a total pay-off of 756,637
30 year fixed at 7% = Payments of 1663 with a total pay-off of 598,772
25 year fixed at 7% = Payments of 1767 with a total pay-off of 530,084.40
20 year fixed at 7% = Payments of 1938 with a total pay-off of 465,179
15 year fixed at 6.625% = Payments of 2195 with a total pay-off of 395,097
20 year fixed at 6.625% = Payments of 2855 with a total pay-off of 342,555
So in the end the best advice we can offer is that you select the loan that best fits your needs: is the
goal to have the lowest payment? or is it to save the most money over time? or perhaps it's a combination
of the two...
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Fixed Rate Morgage Definition and Advice...With A Useful Quote Comparison
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