Buying a home is probably one of the biggest, most important, and smartest financial decisions you will make in your life. There are several options as far as the terms of your fixed rate mortgage. The basic types of mortgage loans terms are a 30 Year Fixed Rate Mortgage, a 20 Year Fixed Rate Mortgage, and a 15 Year Fixed Rate Mortgage. Throughout those years, the interest rate and principal payments should remain the same. Escrow items such as property taxes, homeowners insurance, and your PMI (Private Mortgage Insurance) can go up but most generally your monthly payments should be very stable.
The benefit of the 20 year fixed rate over the 30 year fixed rate mortgage is that not only do you become debt free 10 years sooner but the interest rate is often much lower. This mortgage amortizes principal and interest over 20 years and you can save a considerable amount of total interest in the long run but overall the monthly payments will be much higher than the 30 year fixed rate.
A 20 year fixed rate mortgage loan is just right for those people that don't want to pay all the interest they would pay on a 30 year fixed rate mortgage but don't want to pay the higher mortgage payment that comes with a 15 year fixed rate mortgage. With the 20 year fixed rate option, not only do you become debt free 10 years sooner but the interest rate is often lower. If you are planning to stay in your home for a long time this type of loan would be best for you. Be sure to visit our mortgage calculators so you will know what loan term and interest rate that you will be most comfortable with.
There are some advantages and disadvantages of financing your home on a 20 year fixed rate mortgage note. Some advantages are the 20 year fixed rate mortgage will be payed off 10 years sooner and in the process you will save thousands of dollars in interest over the life of the loan compared to the 30 year fixed rate mortgage, it usually comes with a lower interest rate compared to the 30 year loan. Another advantage is that with any fixed rate mortgage, your interest rate will remain the same throughout the loan so there are no interest rate change surprises. Some disadvantages of financing your home on a 20 year fixed rate mortgage are when compared to the 30 year fixed rate mortgage your payment will be higher because you are financing it for less years and when compared to the 15 year fixed rate mortgage you will still be paying quite a bit more interest. For more information on the types of loans and which loan is best for you, please be sure to visit our "Which Loan Is Right For Me?"
In short, remember each type of loan has different reasons why you should or shouldn't choose them. The best thing to do is do some research before applying and find the best interest rate and loan term because this will help keep your payments lower but it could actually save thousands of dollars in finance charges over the life of your loan.
