Fixed Rate Mortgage: Is It Right For You?

In the last few years of the Bush administration, we have seen interest rates fall to unbelievable lows. So wouldn’t it make sense to have a mortgage that reflected the falling rates? Sounds like a good deal, right?

Well, as quickly as the rates can drop, they can rise and that is the trend we are seeing now. For this reason, a fixed rate mortgage is the most popular option with homebuyers. With a fixed rate mortgage, you have the option of locking in your rates for a period of 15 or 30 years. This way your payments remain the same and are not dictated by the state of federal interest rates.

Deciding between a 15- or 30-year fixed rate mortgage all depends upon your financial situation. With a 30-year mortgage, you obviously have a longer time to pay back your initial loan with lower monthly payments because the interest for these loans is stretched out over 30 years. Come tax season, a 30-year loan can make more sense because you can deduct more thus significantly decreasing your liability. While there are many advantages of a 30-year mortgage, you want to be aware that while your payments are lower, your interest rates are increased.

So now that you know that you have lower payments and a longer time to pay back the loan, why would anyone want to choose a 15-year fixed rate mortgage? For one reason, your equity builds at a much faster rate than a 30-year. A second reason – lower interest rates. With a 15-year loan, as we stated before, your monthly payments are higher. But if this is a viable option for you – paying down your loan in a shorter amount of time makes better financial sense.

When choosing between a 15- or 30-year loan, take into consideration all of the pros and cons of the two options. It all comes down to what is feasible for you. You took careful time choosing your perfect home, so shouldn’t an equal amount of consideration go into your decision about how to finance that home.