Types Of Mortgage
A popular type of mortgage has to be the Fixed Rate Mortgage which is also known as a FRM. A fixed rate mortgage offers an interest rate that will never change over the entire life of the mortgage which can very advantages if the interest rate is low at the outset. These offer the same interest rate, monthly principal and interest payment throughout the entire term of the mortgage.
The term or length of the FRM determines how much you will eventually pay for your property. The longer the length of the mortgage, the lower the monthly payments and the more cash you'll have for other expenses. With a shorter term mortgage, you will have higher monthly payments and you will qualify for a smaller mortgage amount, but you'll save on interest costs over the life of the mortgage and build your equity faster.
A "traditional" choice the fixed-rate mortgage loan is the still the most popular because it offers stability and predictable monthly mortgage payments. The monthly principal and interest payment is fixed over the life of the mortgage. This type of mortgage offers you the security of a fixed interest rate so you will always know exactly what your mortgage payments will be. However your mortgage payment options are limited with this type of mortgage, but you're protected when interest rates rise. The term of your mortgage can be anything from 15 up to 30 years. The type of person who might benefit from a Fixed Rate Mortgage would be someone who would prefer mortgage payments with no surprises, are on limited or fixed incomes, plan to stay in their homes a long time so are able to have a long mortgage term or are purchasing or refinancing a mortgage at a time when interest rates are comparatively low.
The length of the term of mortgage offers differing advantages. Currently with present tax legislation, the 30-year mortgage term gives you the maximum tax advantage by having the greatest interest deduction. While the fact that you are paying more interest on the mortgage may not seem like a benefit, you make lower mortgage payments with the longer term fixed-rate mortgage and you get a bigger tax deduction. If you will be staying in your home for many years this may be the best mortgage option and this type of mortgage is also the easiest to qualify for.
With the 20 year term you will be paying for your home for 10 years less and you can get a lower interest rate. These mortgages are not offered through as many banks and mortgage lenders, however, so you may have to shop around to get one. The advantage with the shorter term mortgage, besides paying your loan off sooner, is that you will also have more equity in your home sooner than you will with a 30-year loan.
With the 15 year term the same advantages and disadvantages apply as the 20 year mortgage, however your monthly repayments will be greater, but the interest rate is normally lower and thus the total amount you will be paying less.