Fixed rate mortgages

Fixed rate mortgages mean exactly that – the rate and monthly mortgage payment are fixed for the term of the loan. The biggest question when considering a fixed rate mortgage is what term to choose: 15-year or 30? For some, a 30-year loan makes more sense. For others, a 15-year one does. Here are some pros and cons of each.

30-year fixed rate

• Offers the chance to borrow money on a long-term basis without having to worry about the interest rates or payments changing.
• Monthly payments are lower than those on 15-year loans because the interest is amortized over a longer period.
• Lower monthly payments free up money that borrowers can pour into investments that yield more than their homes.
• Higher interest bill increases the amount consumers can deduct at tax time, potentially reducing or eliminating their federal income tax liabilities.*

• Borrowers build equity at a very slow pace because payments during the first several years go largely toward interest rather than principal.
• The overall interest bill is much higher because of the long amortization term.
• The interest rates are higher than on 15-year loans.

15-year fixed rate

Advantages

• Borrowers build equity much more quickly due to shorter amortization schedules.
• Overall interest bills are dramatically lower than those on longer-term loans.
• Interest rates are lower than 30-year loans.

Disadvantages

• Monthly payments can be significantly higher than those on 30-year loans.
• Restricts homebuyers to smaller houses than they might be able to afford with longer-term loans.

*Always consult a Tax Accountant regarding any tax deductions.