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Fixed Rate Mortgages

Most are familiar with a fixed rate mortgage. The major advantage of fixed rate mortgages is that the monthly payment amount is predictable for the life of the loan. Some fixed rate mortgages are:

  • 30-Year Fixed Rate Mortgages
  • 15-year Fixed Rate Mortgages
  • Biweekly Mortgages
  • "Convertible" Mortgages

The 30-year fixed rate mortgage may still be the best mortgage. It offers the lowest monthly payments of fixed rate loans, while providing for a never changing monthly payment schedule. Some lenders offer 25, 20, and even 40-year term mortgages as well. The longer the term of the loan, the more total interest you will pay.

The 15-year fixed rate mortgage allows homeowners to own their homes in half the time and for less than half the total interest of a traditional 30 year loan. The loan's term is shortened by the 10 percent to 15 percent higher monthly payments. Some homebuyers prefer this mortgage because it allows them to own their home before their children start college. Others prefer it because they will own their home free and clear before retirement and probable declines in income. The major disadvantages of the 15-year fixed rate mortgage are the sometimes higher monthly payments. But if saving on total interest costs and cutting the time to have full ownership are important to you, the 15-year fixed rate mortgage is a good option.

The bi-weekly mortgage option shortens the loan term to 18 to 19 years by requiring a payment for half the monthly amount every two weeks. The bi-weekly payments increase the annual amount paid by about 8 percent and in effect pay 13 monthly payments (26 biweekly payments) per year. The shortened loan term decreases the total interest costs. The interest costs for the biweekly mortgage are decreased even farther, however, by the application of each payment to the principal upon which the interest is calculated every 14 days. By nibbling away at the principal faster, the homeowner saves additional interest. However, you trade lower total interest costs for fewer mortgage interest deductions on your federal income tax. Your ability to qualify for this type of loan is based on a 30-year term, and most lenders who offer this mortgage will allow the homebuyer to convert to a more traditional 30-year loan without penalty.