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.
DISCLAIMER – PLEASE READ
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.