FIXED RATE MORTGAGES

Fixed rate mortgages are by far the most popular with home owners. Fixed rate mortgages offer you the security of knowing that your payments will never change.

The 30 year fixed rate mortgage has been around almost since mortgages were invented. Because most first-time home buyers are between the ages of 30 and 40, a 30 year fixed rate mortgage will be paid off right around the time they retire. Another advantage of the 30 year fixed rate mortgage is that monthly payments are lower than what they would be with a shorter-term mortgage.

In the last couple of decades, though, shorter-term mortgages have become more popular. There are any number of shorter-term mortgages: 10 year, 15 year, or even 20 year mortgages.

The 15 year fixed rate mortgage has become the most popular of this group. It allows you to pay off your home quickly, before your children go to college or, if you're buying your first home later in life, before you retire.

The main advantage of shorter term loans such as the 15 year fixed rate mortgage is the amount you save in interest. For example, if you borrowed $200,000 on a 30 year fixed rate mortgage at an interest rate of 6%, your total payments would amount to $431,676. If you borrowed that same $200,000 on a 15 year fixed rate mortgage at 6%, your total payments would be $303,788. That's a savings of $127,888.

Of course, in exchange for those savings, your monthly payments will be higher. The payment on a 30 year fixed rate mortgage of $200,000 at 6% would be $1199 per month (excluding taxes, insurance, and any fees). The payment for that same $200,000 at 6% on a 15 year fixed rate mortgage would be $1687.71, roughly 40% higher.

In addition to the savings on interest, shorter term loans like the 15 year fixed rate mortgage often offer lower interest rates. Many mortgage lenders and brokers offer interest rates on 15 year fixed rate mortgages that are lower by half a percentage point or more than 30 year fixed rate mortgages. As always, do your homework and go shopping.