Fixed Rate Mortgages
Among the many types of principal mortgages available to
an average consumer, fixed rate mortgages are still the most
popular. With interest rates that never change and monthly
payments that remain mostly steady, fixed rate mortgages provide
a great deal of certainty and stability, characteristics that
may be particularly important to first-time borrowers. In
fact, the only possible payment fluctuations with fixed rate
mortgages come from homeowner’s insurance and property
taxes, since the other elements stay constant.
Fixed rate mortgages are remarkably simple, another reason
why they are a good choice for a principal mortgage. There
are still some choices to make, such as the term of your mortgage.
You can choose a shorter term, such as fifteen years, or a
longer one, like thirty years. You can also choose a biweekly
payment schedule, which results in an extra payment each year,
and an earlier payoff.
Fixed rate mortgages amortize fully, meaning they are set
up to pay off at the end of the specified term. At the beginning
of the loan, the payments are geared to pay far much more
interest than principal. Each month, the balance of the loan
still decreases, but the monthly payment and interest rate
remains the same. This leads to the amount of payment applied
to the principal increasing each month. Through this process,
a 30-year loan will be half-way paid after 22.5 years.
Fixed rate mortgages are a good choice for a principal mortgage
because of the steady interest rates they provide. However,
if interest rates do fall in the years following your choice
of a fixed rate mortgage, you can always refinance to a lower
rate. In any case, fixed rate mortgages are a safe choice
for your principal mortgage.