loan type: Fixed-Rate Mortgages
about fixed mortgages
Fixed-rate conventional mortgages are the easiest mortgage loan for home buyers to understand. Commonly referred as the 30-Yr and 15-Yr mortgage loan.
The monthly mortgage payment and interest rate are fixed these amounts will never change.
15-Yr vs. 30-Yr Mortgages
You can choose the standard 30-year fixed rate mortgage or pay off your home loan faster with a 15-year fixed rate mortgage.
30-Year: lower monthly payment, higher APR
15-Year: higher monthly payment, lower APR
The APR on a 15-year mortgage is about 0.05 to 1.0 percent lower than the standard 30-year mortgage. You will also pay your loan off quicker saving thousands of dollars in total interest charges.
Review this cost comparison sheet:
15-Year 30-Year Interest Rate (APR): 7.50% 8.00% Monthly Payment: $927.01 $733.76 Number of Payments: 180 360 Total Money Spent: $166, 862 $246,149 Total Interest Paid: $66,862 $164,149
The 15-year mortgage is popular among young home buyers who have sufficient income
to pay off their mortgage before their children start college.
Their home equity builds up quickly in a shorter period giving them additional financing options for buying a car, paying for college, saving for retirement, etc.
Compare the cost difference between the 15-Year and 30-Year fixed rate mortgage:
- loan comparison calculator
- another view from Dinkytown.net:
Other Repayment Terms
Some lenders may offer other repayment terms other than the standard 15-year and 30-year term.
Other terms may include:
- and in some cases, 40- and 50-Year terms.
General rule to remember:
the longer the term, the higher the interest rate that you will be charged and the greater amount of interest you will pay over time.
The 40-year or 50-year mortgage loan program
is becoming popular in high-priced markets. These extended fixed-rate mortgages will reduce your monthly payment to afford higher priced homes.
Mortgage Terms 30-Year 40-Year Mortgage Loan Amount: $400,000 $400,000 Interest Rate (APR): 6.00% 6.15% Monthly Payment: $2,398.20 $2,242.82 Monthly Savings: N/A $155.38 Amount of Equity Earned after 5 years: $27,882.57 $13,505.26 after 10 years: $65,257.10 $31,858.28
run your own numbers to compare
About 40-50-Year Mortgages:
Not many lenders offer the 40-year or 50-year mortgage terms. Those that do generally offer ARM hybrids.
Example: You might get the 5/1 ARM with the first 5 years of fixed payments amortized to 40 years. At the end of 5 years, the remaining term will be adjustable monthly for 35 years thereafter.
Most homeowners will either sale or refinance the home.
The advantages of 40-year or 50-year mortgages is that you can afford higher priced homes. The disadvantages of 40-year or 50-year mortgages is that you are building little equity and paying higher interest rate charges.
Loan Repayment Options
Consider pre-paying your mortgage a little each month:
If you don't have the finances to pay the 15-Yr higher monthly payment, consider prepaying a little each month.
start with a fixed rate 30-year term. You will be required to pay a minimum amount each month based on a 30-year amortization schedule.
You can pay a little extra each month by sending in an amount that is over the minimum amount required.
- You can pay as little as $1 over the minimum requirement
You can pay $1 over the minimum amount to as much as you like up to your available mortgage balance on your loan.
Please note that your minimum payment amount will remain the same each month no matter how much you prepay. Paying an additional amount each month will reduce your mortgage balance over time
This "pay a little extra" option allows you to budget your finances so that you can prepay when circumstances allow.
- The prepayment option is for homeowners who have the discipline and budget to prepay
Prepay a little extra each month in order to take full advantage of the reduced cost.
You can discipline yourself by establishing a reoccurring online payment schedules through your financial institution. You can also use an outside bill paying service to make your payments. But there is a cost to such services.
see our information on mortgage management notes
- Note: some mortgage lenders penalize on prepayment.
If a lender offers you a mortgage product that has a prepayment penalty, negotiate the terms to have that prepayment clause removed.
Also notify your lender that any extra cash over the minimum payment is for reducing the mortgage principal, and is not to be used for paying non-accrued mortgage interest.
Accelerated (Bimonthly) Payments
Many lenders offer the accelerated repayment schedule
this allows you to pay half of your monthly mortgage payment every two weeks.
say your monthly mortgage payment equals $1000. Under the accelerated payment schedule, you will pay $500 every two weeks.
These payments will equal to 26 bimonthly payments, or equivalent to 13 monthly payments.
Under this plan you can payoff your 30-year loan in about 23 years saving you in total interest charges.
- Another way to reduce your loan in the same way is to prepay an additional 1/12th of your monthly payment each month.
You will then pay $1,083.33 each month, which will reduce your payoff time in about 23 years.
We have more information about the accelerated program.
click here for our mortgage management notes
Early Mortgage Payoff Plans
You Can Payoff Your Mortgage Quickly:
in about 1/3rd of the time without refinancing think about it, your 30-year mortgage paid off within 11-12 years without changing your monthly payment schedule or refinancing.
- Early Payoff Means Big Savings:
by paying off your mortgage early, you can save a lot of money by not having to pay all that interest to the banks
download our amortization schedule to run your own numbers
- Early Payoff Means Better Security:
if anything should happen to your job, health, or other unplanned event, having your mortgage free and clear can prepare you for an unexpected financial emergency.
- Early Payoff Means Better Planning:
what could you do with the extra money by not having a mortgage payment how about saving for college, saving for retirement, taking some travel, etc.
- How Does This Program Work:
by using a piece of software that calculates when you should make accelerated payments using a line of credit as your money account more information available
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