When it comes to determining what kind of loan program is best for you a fixed rate loan, a variable rate loan or some of the other less common options, there are a number of things to consider. It's not s simple decision. You must look at your finances now and what you perceive them to be in the future (as much as any of us can have a crystal ball about that.) You have to have a good idea of how long you'll want to live in the new home (or the current one you are refinancing) and how much discomfort you'll endure over any change to your mortgage payment.
A fixed rate home loan with a term of 15 years for example, might save you several thousand dollars in interest payments over the course of the loan. Your monthly payments will be higher than a loan with a longer term, of course. They could also be higher than the rates of a variable 15 year mortgage but that's difficult to predict. That variable rate mortgage, what is sometimes referred to as adjustable rate will probably start you at a lower rate than a fixed rate loan but could quite possible result in a rate down the road the is considerably higher than the fixed rate home loan option. This is where an experienced, honest and reputable home loan officer or mortgage professional can be of considerable help.
A fixed rate loan is the most common of mortgage plans. With this fixed rate loan your mortgage payment won't change because your rate of interest won't change. It's ideal for those who must budget ahead. Property taxes on your home could increase as could your homeowners insurance.
You can get a fixed rate home loan for 10 years, 15 years, 20 years or 30 years. You can also opt for a less-common biweekly mortgage of any term. This shortens the loan a little bit because you make half of a monthly payment every two weeks. The result is that you make 26 payments in a year rather than 24. This can save you considerable money in interest over the life of the loan, and it's often an easier way to pay since so many folks get their paychecks on this schedule as well.
A fixed rate fully amortizing loan has two very distinct features. The first is what we've already discussed the interest rate never changes. The second feature is that the payment of the principal never changes during the loan's life either, and these payments are structured so that the loan principal is fully paid at the end of the term of the loan. The two most common terms for a fixed rate home loan are 15 and 30 year mortgages.
While one might think that each payment, since it is equal to every other one in a fixed rate loan, is going to pay the identical amount of interest as the others, that is not the case. The newer the mortgage the larger the percentage of the payment that goes to the interest. The longer you pay on your fixed rate home loan the more of your monthly or biweekly payment that is applied to your balance. With the typical fixed rate 30 year mortgage it will take you nearly 23 years to pay even half of the total money you borrowed.
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