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Fixed Rate Mortgage
There are several types of mortgages offered by lenders in the market.
The most common of these types is fixed rate mortgages. Fixed rate
mortgage loans are characterized by fixed rates and monthly payments
that are generally for a 15-year and 30-year periods.
Fixed rate mortgages are popular in the consumer market because of
its stability. Most consumers are hesitant to get house loans where
the rates fluctuate with the changing interest rates of the market.
Fixed rate mortgages are generally very affordable, especially when
rates are low.
Consumers of fixed rate mortgages are faced with having to choose
between a 15-year fixed rate mortgage or a 30-year fixed rate mortgage.
Some prefer 15-year fixed rate mortgages because of the shorter duration.
Other consumers choose 30-year fixed rate mortgages because the payments
are considerably lower than the former.
Each type of fixed rate mortgages certainly has its own advantages
and disadvantages. Here are some of them.
30-year Fixed Rate Mortgage – Advantages and Disadvantages
A 30-year fixed rate mortgage gives consumers the opportunity to borrow
money on a long-term basis. They do this without having to worry about
the change that might occur in fixed rate mortgage interest rates
or payments of such.
Because the interest of a 30-year fixed rate mortgage is amortized
over a longer period, the monthly payments for this are lower than
those on 15-year loans. Lower monthly payments on 30-year fixed rate
mortgages give consumers an extra resource which they can pour into
other worthy investments.
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"But it is a pretty thing to see what money will do!”
- Lucius Annaeus Seneca
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On the other hand, this could also cause a slight disadvantage for
30-year fixed rate mortgage borrowers. The overall interest bill of
a 30-year fixed rate mortgage is much higher because of the long amortization
period. And because payments for 30-day fixed rate mortgages are usually
used to pay up the interest rather than the principal at first, borrowers
will be building up their equity at a slower pace.
The high interest rates of 30-day fixed rate mortgage loans do not
necessarily stop consumers from taking this type of loan. They reason
that higher interest bill for 30-day fixed rate mortgages increases
the amount they can deduct at tax time. This could potentially reduce
or perhaps, even eliminate their federal income tax liability.
15-year Fixed Rate Mortgage – Advantages and Disadvantages
One of the advantages that attract borrowers into taking a 15-year
fixed rate mortgage is the fact that amortization periods for this
type of loan are usually shorter. This allows 15-year fixed rate mortgage
borrowers to build equity much quicker. And with a 15-year fixed rate
mortgage, the overall interest bills are low – at least, considerably
lower than those of longer-term loans. Interest rates of a 15-year
fixed rate mortgage are also lower than 30-year loans.
The disadvantages however include significantly higher monthly payments,
especially when compared with 30-year fixed rate mortgages. This setback
of having a 15-year fixed rate mortgage may restrict home buyers to
smaller houses than they might be able to afford with longer-term
loans.
There are also other factors to consider when choosing which type
of fixed rate mortgage you want to take. Keep in mind that you can
actually do a prepayment for your fixed rate mortgage, that way, the
principal amount may be significantly reduced each month. In this
way, fixed rate mortgages may even be paid off sooner than the projected
term.
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