Fixed-rate mortgages

Lenders offer several types of mortgages, but the most common are fixed-rate mortgages. These loans feature fixed rates and monthly payments, generally for 15-year and 30-year periods.

Fixed-rate loan borrowers face one major choice: 15 year or 30? For some, a 30-year loan makes more sense. For others, a 15-year one does. Here are some pros and cons of each.

30-year Fixed Rate

Advantages Disadvantages • Offers the chance to borrow money on a long-term basis without having to worry about the interest rates or payments changing. • Monthly payments are lower than those on 15-year loans because the interest is amortized over a longer period. • Lower monthly payments free up money that borrowers can pour into investments that yield more than their homes. • Higher interest bill increases the amount consumers can deduct at tax time, potentially reducing or eliminating their federal income tax liabilities. • Borrowers build equity at a very slow pace because payments during the first several years go largely toward interest rather than principal. • The overall interest bill is much higher because of the long amortization term. • The interest rates are higher than on 15-year loans.

15-year Fixed Rate

Advantages Disadvantages • Borrowers build equity much more quickly due to shorter amortization schedules. • Overall interest bills are dramatically lower than those on longer-term loans. • The interest rates are lower than 30-year loans. • Monthly payments can be significantly higher than those on 30-year loans. • Restricts home buyers to smaller house than they might be able to afford with longer-term loans.