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Fixed Rate Mortgage |
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What is a Fixed Rate Mortgage?
This is the most common loan arrangement in the U.S. With a fixed-rate mortgage the loan's principal and interest are amortized, or spread out evenly, over the life of the loan, giving you a predictable monthly payment.
The upside is, if rates are low, you can lock in for as long as 30 years and protect yourself against rising rates. However, if rates fall you can't change your rate without refinancing the loan and that could cost money.
The 30-year Fixed-Rate Mortgage, the most popular and easiest to qualify for, will give you the lowest payment. But you can also get a 20-, 15- and even a 10-year fixed-rate mortgage if you wish to save interest and pay your home off sooner.
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How Can I save on a Fixed Rate Mortgage?
Short Term Mortgages
You don't have to finance your home for 30 years. Granted, the payments will be lower, but you'll be paying them longer. You could, instead, opt for a period of 20, 15 or even 10 years, pay your home off sooner and save in interest.
The table below shows you the interest savings on a $100,000 loan at 8.5% interest:
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Term
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Monthly Payment
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Total Interest Accrued
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30 yr
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$768.91
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$176,808.95
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20 yr
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$867.83
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$108,277.58
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15 yr
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$984.74
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$ 77,253.12
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By paying $215.83 more a month on a 15-year mortgage, you'd save $99,555.83 in interest over a 30-year loan - and own the house in half the time.
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