Fixed rate mortgages
Fixed rate mortgages mean exactly that – the rate and monthly mortgage payment are fixed for the term of the loan. The biggest question when considering a fixed rate mortgage is what term to choose: 15-year or 30? For some, a 30-year loan makes more sense. For others, a 15-year one does. Here are some pros and cons of each.
30-year fixed rate
- Offers the chance to borrow money on a long-term basis without having to worry about the interest rates or payments changing.
- Monthly payments are lower than those on 15-year loans because the interest is amortized over a longer period.
- Lower monthly payments free up money that borrowers can pour into investments that yield more than their homes.
- Higher interest bill increases the amount consumers can deduct at tax time, potentially reducing or eliminating their federal income tax liabilities.*
- Borrowers build equity at a very slow pace because payments during the first several years go largely toward interest rather than principal.
- The overall interest bill is much higher because of the long amortization term.
- The interest rates are higher than on 15-year loans.
15-year fixed rate
- Borrowers build equity much more quickly due to shorter amortization schedules.
- Overall interest bills are dramatically lower than those on longer-term loans.
- Interest rates are lower than 30-year loans.
- Monthly payments can be significantly higher than those on 30-year loans.
- Restricts homebuyers to smaller houses than they might be able to afford with longer-term loans.
*Always consult a Tax Accountant regarding any tax deductions.
The information contained in this article has been prepared by an independent third party and is distributed to consumers for educational purposes only. The information is not guaranteed to be accurate and does not represent the opinions of Guild Mortgage Company.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction. *By refinancing an existing loan, total finance charges may be higher over the life of the loan. *Information is for general illustrative purposes only. The information is believed to be reliable, but Guild Mortgage does not warrant its completeness, timeliness or accuracy. Guild Mortgage assumes no responsibility for errors or omissions in the information provided. *Typically, a non-purchase second mortgage. **Please consult your financial advisor on the consolidation of short term debt into long term debt.
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