Choosing The Right Fixed Rate Mortgage
When shopping for a mortgage loan, the first thing to consider is which type of mortgage is right for you. Mortgage loans come in two basic categories, fixed rate and adjustable rate; but within these two categories, there are several other possible loan types that many consumers mistakenly don’t take the proper time to educate themselves about. In this article, we will be addressing fixed-rate loans.
Selecting the Best New York Mortgage
Most people know what the terms of a fixed-rate mortgage entails; basically, the interest rate remains stable over the life of the loan. Fixed-rate loans generally come in both a 15-year and 30-year term. Recently, some lenders also began offer both 10-year and 40-year terms as well.
So which term is better?
That really depends on the borrower. Shorter terms will have a higher payment while longer terms will offer a lower payment, but you can almost get the best of both worlds considering nearly all fixed-rate loans today do not contain a pre-payment penalty in whole or in part.
Let’s take an example of a $100,000 loan at a rate of 5%. The payment on this loan for a 30-year, fixed-rate loan would be $536.82 per month. Generally, the shorter the term the lower the rate, so the payment for the same $100,000 loan on a 15-year, fixed-rate at an interest rate of 4.75% would be $777.83 per month or $241.01 higher than the 30-year loan.
Some people that can afford the 15-year rate might opt to pay the extra $241.01 and pay off their mortgage in half the time, the only problem with this is once you sign up for the 15-year term you must make this payment each and every month. If the extra $241.01 becomes difficult to make no matter what the reason, the only way to reduce the payment is to refinance the property.
However, knowing this loan has no prepayment penalty in part means if you opt for the lower, 30-year payment, you are still free to pay the extra $241.01 every month if you can afford it. Even at the higher rate of 5%, if you paid the $777.83 each month, the 30-year loan would be paid off in full in 15 years and 5 months. However, if at anytime you couldn’t afford the extra $241.01, there would be no penalty and you could avoid the cost of refinancing loan.
Keep in mind, this works for any amount you can afford to prepay. Using the same scenario above but only prepaying just $100 each month for a total monthly payment of $636.82, the loan would be paid in full in 20 years and 5 months.
Want to learn more about choosing the best mortgage? Click here for a no obligation consultation and lowest rate guarantee.
