A fixed rate mortgage is the most common type of mortgage where the monthly remittances for the interest and the principal amount remain constant for the mortgage term.
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Benefits Of Taking a Fixed Rate Mortgage
A fixed rate mortgage is the most common type of mortgage where the monthly remittances for the interest and the principal amount remain constant for the mortgage term. Note that taxes and property insurance may increase but the monthly remittances remain constant. The mortgages are available for 10, 15, 20, and 30 year periods while some also prefer a biweekly repayment schedule where one can be able to finish the loan faster because they'll be remitting an agreed amount after every two weeks.
Two unique features are what stands fixed rate mortgages out of the rest, first off is the constant interest rate that will remain so until the mortgage term ends, and secondly the loan payment will remain at the same level and they are designed for the loan repayment once the mortgage term ends.
15 year and 30 year mortgage are the most common fixed rate mortgage loans. At the initial payment period, a substantially large amount will be taken as the interest where the left amount will be added to the principal amount. This is to say that if for example the loan repayment period is 30 years, it will take around 22.5 years for level payment of the total loan and repayment of the first half of the mortgage amount.
Incase the loan is for below 30 years, you can opt to be paying only the interest on your monthly remittances or you might decide to pay off the principal amount with the interest. The Latter is a good choice for those who have money difficulties because when you lower the payment, you increase your money flow for offsetting interest bills, paying school and college fees, remodeling and repairing your house or increasing your retirement savings.
With a fixed rate mortgage, the loan rate will be fixed during the entire mortgage term meaning that you might opt to pay interest for the first 10 years and combine the remaining interest along with the principal amount in the next 20 years. This way, you'll be able to repay the loan without having to pay any pre-payment penalties. Most people prefer taking a 30 year mortgage to the 20 or 15 years mortgage because not only will the monthly payments be less, the interest rates will remain constant through out the 30 years as well as the monthly payment. This is unlike the 20, or 15 year mortgages where you'll end up paying high interest rates and the rates will remain constant even if the interest rates will be decreased.
If you're thinking of taking a long term loan, and doesn't want to take the risks, you might want to go for fixed rate mortgages.
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By Oskar Hörnell on January 18, 2010, 6:15 pm
Yep, this is true.