With a fixed-rate mortgage, the loan term’s interest rate does not change, so the monthly payment is always the same. Typically, the shorter the loan period, the more attractive the interest rate will be.
Payments on fixed-rate fully amortizing loans are calculated to pay the loan in full at the end of the term. In the early amortization period of the mortgage, a large percentage of the monthly payment pays the interest on the loan. As the mortgage is paid down, more monthly payments are applied toward the principal.
A 30-year fixed-rate mortgage is the most popular type of loan when borrowers can lock into a low rate.
Benefits:
- Lower monthly payments than a 15-year fixed-rate mortgage
- The interest rate does not go up if interest rates 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
A 15-year fixed rate mortgage allows you to pay off your loan quicker and lock into an attractive lower interest rate.
Benefits:
- Lower interest rate
- Build equity faster
- If interest rates go up, yours is fixed
Drawbacks:
- Higher mo Interest rate; stays the same if interest rates go down
- Interest rate stays the same even if interest rates go down
