Fixed rate mortgages offer borrowers looking for a stability an interest rate which remains fixed for the lifetime of the loan. The payments remain constant and are designed to repay the loan over a defined period of time, usually from 10 to 30 years in five year increments. The main benefit of a fixed rate mortgage is, as the name suggests, an interest rate that is guaranteed to remain at a certain percentage for the entire length of the loan. The tradeoff, however, is that this fixed rate is higher than that of an adjustable-rate mortgage, as the lender charges a higher price for taking on the risk associated with interest rate fluctuations.
This type of mortgage tend to be somewhat harder to qualify for, since the first installments are higher than with other types of loans, and lending agencies tend not to grant as high a loan due to this factor.
There also is private mortgage insurance to consider. To learn more, read this article. It also details how much easier it has gotten in the past year to actually get rid of this extra payment as soon as possible.
Generally, the shorter the duration of the term, the lower the interest rate assigned to it. A thirty year loan granted for the same amount as a fifteen year loan will have lower monthly payments, but the fifteen year loan will incur roughly only half the interest, making it a better overall borrowing plan for those who can afford to make the higher payments.
During the early stages of repaying this type loan, called an "amortization" period, a higher percentage of each payment goes towards repaying the interest on the borrowed money. As time passes and the loan ages, the balance changes and the weight of each payment shifts to favor the principal.
One type of alternate payment method available for some fixed rate mortgages is a "bi-weekly" payment schedule, in which a proportionately smaller installment is made every two weeks. This plan allows the equivalent of 13 months worth of payments to be made in one year.
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