This works well for those with a steady income who like the stability of knowing what their monthly payments will be. If you have little or no down payment, a 30 yr. Fixed Rate loan is probably the best one for you. If you have a larger down payment and can afford a higher monthly payment you can opt for a Fixed Rate loan for 15 yrs., or even in lengths of 10, 20, or 25 years. Some lenders offer 40-year mortgages, which would allow some people to buy a larger house without the larger payment. The longer the loan terms, the more interest you end up paying. You always have an option to pay additional principal as the loan progresses. This would decrease the amount of interest you pay on the loan long term, and shorten the length of the loan.
Fixed Rate Mortgages (FRM’s)
- Interest rates stay constant for the life of the loan.
- Offered in 10, 15, 20, or 30 year terms.
- Payments are made up of principal and interest (P & I) portions and escrow portions. The P & I portion would not change for the life of the loan. Escrow amounts would pay for things like home owners insurance and property taxes. Escrow amounts may vary from time according to the cost of these items.
- If your loan requires that you carry Personal Mortgage Insurance (PMI), these payments would be added to your monthly payment amount until this mortgage would no longer be necessary. This is normally when you acquire 20% equity in the home.
- Fixed rate mortgages usually have low down payment requirements.