Mortgage Basics
A calculator a house and a $1 bill in the background
mortgage
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.

They're popular because:

1. Consumers balk at the thought of their house payment rising and falling with interest rates.

2. Whenever rates are low, fixed-rate mortgages are very affordable.

Fixed-rate 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
AdvantagesDisadvantages
  • 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
AdvantagesDisadvantages
  • Borrowers build equity much more quickly due to shorter amortization schedules.
  • Overall interest bills are dramatically lower than those on longer-term loans.
  • Interest rates are lower than 30-year loans.
  • Monthly payments can be significantly higher than those on 30-year loans.
  • Restricts homebuyers to smaller houses than they might be able to afford with longer-term loans.

 

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
MORTGAGE & REAL ESTATE NEWSLETTER

Timely market news and advice for consumers ready to buy, sell or invest in real estate. Delivered weekly.

Blog

Judy Martel

More homeowners above water

Rising prices are driving homeowners into positive equity, but it could be a long road.  ... Read more

advertisement
Partner Center
advertisement

Connect with us