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Fixed Rate

A fixed rate mortgage has the same interest rate for the term of the loan. This means your mortgage payments never change. Because your interest rate is fixed, the interest rate may be higher than other types of mortgages. But you have the security of knowing that your payments will not go up. If you plan to keep your home for a long time, this mortgage will probably save you money.

15-Year Term: This has the highest monthly payments because the loan term is shorter. You build equity faster and the interest rate is usually lower. If you can afford higher payments and want to build equity quickly, this may be the best choice.

30-Year Term: You can qualify for a larger loan amount with a 30-year term than with a 15-year term. But interest rates may be higher and you pay more interest over time. If you don’t plan to move and the interest rates are fair when you sign the loan, this may be a good choice. This is the easiest loan term to qualify for.

40-Year Amortizing Loan: As home prices continue to rise, more lenders offer 40-year loans. These loans help reduce monthly payments by stretching out the time that you have to pay the money back, but increase the total amount you owe. However, even though the loan amortizes over 40 years, which means a lower monthly payment, there is a balloon payment due after 30 years. In other words, if you do not refinance the loan or sell your home, after 30 years you will be required to pay the remaining balance all at once. The drawback is that 40-year loans cost more in interest and it takes longer to build equity.

The good news:
  • You always know what you owe. A good choice if you plan to sell your home before the 30-year mark, since monthly payments will be lower.
The bad news:
  • You might get stuck with a higher interest rate, since it is fixed for such a long time.
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