Finding the best low rate fixed mortgage will help build equity in your home faster than taking out an interest only loan.
A traditional mortgage is an equity builder.
This is probably the most recognizable mortgage type. Your parents probably had one. Their parents also most likely had the same type.
The single largest advantage of this type is the predictability of housing costs for the term of the mortgage.
When people thought of mortgage many years ago, they usually thought of a traditional fixed rate mortgages usually for a term of 30 years.
Other types you have more than likely heard about include:
- 30 year Fixed Rate
- 25 year fixed rate
- 15 year Fixed Rate
- Bi-weekly Payment
- Adjustable (or variable) Rate
- Reverse Mortgage
Volatile financial times have created a whole new range of selections so the traditional mortgage is now one of many choices available. Even still, the 30 year fixed rate type of mortgage may still be the better mortgage choice for your personal circumstances.
Finding the best fixed rate mortgage deals.
While it offers the lowest payments of all the fixed rate mortgage loans, it also provides for a uniform monthly payment schedule.
Lenders now offer 25 year, 30 year, and even 40 year terms as options on mortgages. Just keep in mind that the longer the loan term, the more interest you end up paying long term.
Tom and Anna’s Story:
When we were looking for our first house, both of us were employed, so we were able to pre-qualify for quite a hefty mortgage amount. But we knew that eventually one of us would be staying home to raise our future family, so we decided to submit for loan approval only using one of our incomes. Also, we decided on a fixed rate thirty year mortgage because it seemed like the most conservative and non-volatile choice.
The way we setup our mortgage was perhaps the most deciding factor in the financial stability we are able to enjoy now that we are ten years into the loan. As predicted, we are now living on one income. But because we were conservative when selecting our mortgage product and were not swayed by any extremely low adjustable rates or the lure of oversized homes, we are not “house poor” as many people are at this time.
Of course, our home has lost value in this economy along with all the homes in our area. But we couldn’t be happier knowing that a wise choice with our mortgage has helped us reach our goals for our family, finances and future.
15 year fixed rate mortgages allow home buyers to own their homes outright in half the time with less than half the interest costs of the 30-year term loans. The payments on a 15 year fixed rate loan are typically 10% to 15% higher, which shortens the term and cuts the interest dramatically.
Some home buyers, when they wish to refinance their house, prefer the 15 year fixed rate mortgage for a couple of reasons. One is so they will have the loan paid off before the kids go to college while others look at owning the home free and clear before they retire.
I purchased a home two years ago from a family friend. I knew that I would not have the suggested 10% to put down. At the same time, the property was being sold by a friend of mine for around $100,000. This was well within my price range.
I decided to apply for an FHA loan. The benefit this type of loan is that you only need 3.5% down, plus closing costs. The goal of putting down the 3.5 percent was easy to meet, but I was surprised at how much closing costs were. I paid about $7,000 in closing cost in addition to the down payment.
I applied to a small loan company for both closing paper work and the loan. Since I did not go through a real estate agent, I had to do a lot of paper work before the sale. I was also in charge of the FHA and home inspector.
Overall, I was happy with the result. The down side is that with the FHA, I was only able to lock in a 5.5 percent interest rate, even with great credit, but I ended up with a fixed rate mortgage I can afford.
Compare fixed rate home mortgages.
The biggest disadvantage of the 15 year fixed rate mortgage is the higher monthly payments. But if dramatic savings on interest costs and owning the home sooner are pressing factors for you, then a 15 year fixed rate mortgage is probably a good choice.
The bi-weekly mortgage shortens the loan term to less than 20 years by cutting the payment in half and requiring that payment every two weeks. The bi-weekly payments increase the amount paid yearly by about 8% and effectively forces 13 monthly payments (26 biweekly payments) annually.
Save money and pay less interest.
The shortened loan term substantially lowers the total interest paid. The bi-weekly plan further cuts interest costs by the application of each payment to the amortized principal portion of the loan every two weeks (14 days). By decreasing the principal faster, more interest is saved over the long run. However, your option to lower total interest costs means fewer income tax deductions for mortgage interest.
Qualification for this type of mortgage is based on a 30 year term, and some lenders who offer this type of mortgage loan will allow the home buyer to convert a bi-weekly loan to a traditional 30 year loan penalty free. This is because the loan company collects more interest on the 30 year term, so it is much more beneficial for them than for you. They get more interest and you get a lower monthly payment.
In summary, check the various mortgage terms and rates available to find the best low rate fixed mortgage that meets your needs. There are just too many options available to not pay attention!