For those of you who are new to mortgages or new to the process of applying for a home loan, this article will be a valuable resource to introduce you to the basic fixed rate mortgage. This is one of the simpler mortgages to know and also relatively simple to calculate. A basic understanding of the fixed rate mortgage will help you know how other mortgage products may differ from the fixed rate, but also help you to question intelligent questions when speaking with and evaluating a loan officer you may potentially be working with.
These fixed rate mortgages are the most common type of mortgage product. They are not the only type of product, of course, by they are very prevalent. When people speak about getting a home loan, they are usually referring to this type of loan. The fixed rate mortgage product is the one that is probably advertised the most, at least with most state laws, the advertising you’ll here on the radio or see on TV or other media is typically providing information about their lowest fixed rate product.
The most common fixed rate mortgage is a 30 year mortgage. There are also other options including a 15, 20 and even a 40 year mortgage product. This may change in the future as well, but these are the most typical offers you’ll see when evaluating your options. The longer the mortgage term, the lower your interest rate may be, but you’ll typically pay more in interest over the life of the loan. This is why you’ll see a 15 year mortgage with a higher rate than a 30 year mortgage typically. The payments for a 15 year are higher as well simply because the loan amount may not change and to pay off your home in a shorter period, it will require higher monthly payments. Simple math I know, but better to not assume too much.
Fixed rate mortgages have the same payment for each period. The benefit here is that you are able to base your monthly budget or even bi-weekly budget from the amount you’ll be paying each month towards your mortgage. Because the rate doesn’t change, neither does the monthly payment. This makes the fixed rate mortgage very predictable.
There are several loan products or mortgage programs that have what is known as a “balloon” payment where payments are made either directly to the interest as in the case of an interest only loan or even interest and principal with a lump sum due at the end of a given period (usually a couple of years). The fixed rate mortgage is different in this regard, at least the traditional style of mortgage here this article discusses. When you pay off your mortgage with a fixed rate mortgage, you owe nothing more to the bank or lender. There is no need to refinance your home or come up with cash to pay towards a lump sum payment or balloon payment. This style of mortgage is probably the most conservative of the various mortgage products.
The fixed rate mortgages often make the most sense when the owner will be in the home for the duration of the loan, or in a situation where the home is appreciating in value. The reason for this is that for the first 22 years of the loan (assuming a 30 year mortgage), you’ll be paying more in interest than you will in principal. This can be a bit disconcerting, but this also has the advantage that when you are able to submit additional funds toward the loan, these funds are applied directly to the principal. This is sometimes known as a mortgage acceleration program of which there are several types.
Getting a fixed rate mortgage is a excellent program for a large percentage of home owners in today’s society. Keep in mind, but, that this is not the only option. But, if you know the basics of the fixed rate mortgage, you’ll better know the other mortgage products that are available as they are clarified to you by your loan officer. It’s vital to find someone you can trust to work with on your home loan. This will get you most of the way to where you need to be for getting a mortgage or looking into refinancing.
Did you find this article fascinating at all? If so, I have a website that is dedicated to mortgages in Utah that covers not only the basics for the state of Utah, but mortgage information in general as well. You can also review additional information about mortgages from Brian’s other website about Salt Lake City Mortgages.