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Fixed rate conventional mortgages are the easiest mortgage loan for home buyers to grasp since the monthly mortgage payment and rate of interest amounts will never change. Note your total monthly payment can change if ever the escrow payment goes up or down based on the change of your tax and insurance assessment. The fixed rate mortgage is ideal for home buyers who're on set incomes or who usually do not like to see adjustments made to their mortgage payment. Benefits of a Fixed Rate Mortgage Many homeowners like the advantages a fixedrate mortgage provides: Interest rate and per month payment amounts are fixed in the life of the loan Homeowners can budget just how much they deserve to set aside for that mortgage payment Homeowners like the steadiness of a fixedrate mortgage Homeowners can easily understand how a fixed-rate mortgage works 15 Year vs. 30 Year Fixed Rate Mortgage You'll be able to choose the standard 30 year fixed rate mortgage or you may pay off your house loan faster using a 15-year fixed rate mortgage. The 30-year mortgage term has lower monthly payments, but your APR will be slightly higher. The 15-year fixed rate mortgage term have a rather higher monthly payment, but you will usually pay a lower APR. The APR on the 15-year mortgage is about 0.05 to 1.0 percent lower than standard 30-year mortgage. You will also pay your loan off earlier having a 15 year fixed mortgage, saving many hundreds of dollars in total interest charges. Review this cost comparison for any mortgage loan of $100,000: 15-Year 30-Year Interest Rate (APR) 7.50 % 8.00% Monthly Payment $927.01 $733.76 Number of Payments 180 360 Total Money Spent $166,862 $246,149 Total Interest Paid $66,862 $164,149 The 15 year mortgage is well-liked among young home buyers who've sufficient income to repay their mortgage before their children start college. Their home equity builds up quickly in the shorter period giving them additional financing choices for buying a car, paying for school, saving for retirement, etc. Other Reimbursement Options Some credit lenders may perhaps offer additional repayment terms other than the common 15 year and 30-year term. Other terms can include 10-year, 20-year, 25-year, and in some cases, 40 year terms. A general rule to remember is the longer the term, the higher the rate of interest as well as greater amount of interest you will pay over time. Prepayment Options If you prefer the choice of paying off your mortgage sooner having a 15-year term but currently don't have the budget to pay for the higher per month payment, consider pre-paying your mortgage a little each month. As an example, if you begin with a fixed rate 30 year term, you will be required to pay a minimum amount every month based on a 30 year amortization schedule. It is possible to pay a little extra each month by sending in an amount that is over the minimum amount required. You are able to pay as little as $1 over the minimum requirement to as much as you prefer up to your available mortgage balance on your loan. Note that the minimum payment amount will remain the same monthly regardless of just how much you prepay. Paying an extra amount monthly will reduce your mortgage balance over time where you'll be able to pay it off anywhere from 1 to 30 years depending on the quantity you prepay over time. This "pay a little extra" option lets you budget your finances so that you can prepay when circumstances allow. This feature is for homeowners who possess the discipline and budget to prepay a little bit extra every month to be able to take full benefit of the reduced cost. One strategy to discipline yourself is by establishing a reoccurring online payment schedule through your financial institution. You can even use an outside bill paying service to produce your payments. But there is a cost to such services. Remember that some mortgage lenders penalize on prepayment. If a lender offers you a mortgage product that has a prepayment penalty, negotiate the terms to get that prepayment clause removed. Also tell your lender that any extra cash over the minimum payment is for reducing the mortgage principal, and isn't to be used for paying non-accrued mortgage interest. Accelerated (Bimonthly) Payments: Many lenders suggest the accelerated repayment schedule - this enables you to pay half of your monthly mortgage payment every 2 weeks. By way of example, say your monthly mortgage payment equals $1000. Under the accelerated payment schedule, you'll pay $500 every two weeks. These payments will equal to 26 bimonthly repayments, or equivalent to 13 monthly payments. Under this plan you'll be able to repay your 30 year loan in about 23 years, saving you in total interest fees. Another approach to reduce your loan in the same way would be to prepay an additional 1/12th of the monthly mortgage payment each month. You'll then pay $1,083.33 every month, which will reduce your pay-off time in about 23 years.
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