Fixed Rate Mortgage

Fixed rate home loans are the most popular mortgage choice for home buyers. Most fixed rate mortgages have a 15-year or 30-year term. This type of loan is also called a conventional loan, and it is the safest loan and the type that has been around longer than any other.

A fixed rate loan is a good choice when:

• Rates are low
• You want the security of a constant monthly payment

When you get a fixed mortgage, every monthly payment will be equal to the interest times the principal, along with some percentage of principal. Most payments go toward interest charges for the first few years, while the majority of your payments go towards principal as you approach the end of the loan term.

15-Year vs 30-Year Fixed Mortgages

Along with choosing between a fixed and adjustable interest rate, you will also need to choose between a 15-year or 30-year fixed loan term. Each has benefits and drawbacks.

With a 30-year mortgage, you can borrow money for a very long time without risking that your rate will go up or your payment will change. 30-year mortgages have lower payments than 15-year loans, and you will have higher interest payments at first, which means more you can deduct on your taxes. The downside is you build equity slower than with a 15-year loan, and you will pay more in interest over the life of your loan.

With a 15-year loan, you build equity faster. You also have a lower interest rate and pay off the loan faster, which means far less in total interest charges. In exchange for these benefits, you will have a higher monthly payment.