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Compare Fixed Rate Mortgages

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If you plan on staying in your home for 10 or more years and want your mortgage payments to stay at one stable rate, you should consider a fixed rate mortgage. Available for 10, 15, and 30 years, fixed rate mortgages give you the comfort of knowing your monthly payments will never increase. This is especially advantageous when interest rates are low – you'll lock in the current rate for the duration of your loan, whether it's 10, 15, or 30 years, so you're safeguarded from rising interest rates in the future.

When choosing between the different types of fixed rate mortgages, there are a few things to consider. A longer term mortgage (such as the 30 year fixed rate mortgage) has lower monthly payments than 10 and 15 year mortgages. On the flip side, it also has higher interest rates. And, since you're locked into your interest rates for the entirety of the loan, there may be times when interest rates go down but you're stuck paying higher interest rates.

Of course, with a 10 or 15 year mortgage, you may also risk paying higher rates than the current interest rates – but since they are shorter term, there's less opportunity for this to happen. And shorter term fixed rate mortgages benefit from lower interest rates than 30 year fixed mortgages. In addition, you will build up equity on your home in a shorter amount of time, because you are paying more off the principal with each monthly payment. However, in order to do this, your monthly payment is higher than the payments on longer term mortgages.

Find out about 50 year mortgages

With housing prices in some parts of the country hitting record highs, many people's dream of owning a home seems too far out of reach. Add to that the threat of rising interest rates, and that dream can become a nightmare for some. That's why several of the country's mortgage lenders have introduced longer term loans like 40 year and 50 year mortgages to meet the needs of more prospective home buyers.

These newer mortgage options open up the housing market to a larger group of buyers by spreading the loan into lower monthly payments over a longer period of time. It's easy to see why the monthly installments are lower: Imagine dividing payments on a $400,000 home into 360 monthly payments for a 30 year mortgage or 600 payments for a 50 year mortgage. The 50 year mortgage installments would be significantly lower.

Although total interest paid on the lifetime of a longer-term loan will be greater than the interest paid on a 15 or 30 year mortgage, you'll still benefit from building up home equity because you are making payments on both the principal amount of the loan and interest. This makes 40 year and 50 year mortgages attractive alternatives to old standbys like interest-only and payment-option adjustable-rate mortgages, which can be more costly in the long term because little to no principal is paid off.

Compare Fixed Rate Mortgages

Fixed Rate Mortgage

Two major components that are needed to compare fixed rate mortgages are the interest rate and the points. Points are fees paid to the lender at the beginning of the mortgage period. They are based on a percentage of the loan. So, one point equals one percent of the loan amount. Therefore, a $100,000 mortgage with 1.5 points would cost $1,500.

One lender may offer a lower interest rate than another but the points may be higher resulting in a less attractive loan. The important consideration here is the length of time you plan to hold the mortgage. The longer you plan to keep the mortgage, a higher point with a lower interest rate makes more sense. And, the less time you plan to remain in a home you may be more likely to benefit from low or no points with a higher interest rate.

In addition, be sure to ask your lender the total of all fees involved. Lenders can tack on various fees that can add up in a hurry.

Some common fees are:

* application fee

* credit report

* property appraisal

* title insurance

* escrow fees

Request an itemized list of all fees in writing so you can compare mortgages fairly.

Adjustable Rate Mortgage

Selecting the best adjustable rate mortgage (ARM) is basically impossible because there are some unknowns. However, you can look at a few of the loan factors and depending on your situation make a decision you can live with.

The interest rate that an adjustable rate mortgage starts off with is called the start rate. This rate is the least important consideration when looking at ARM's because it will change. The start rate is often used as a teaser rate to make you think that the loan has good terms.

The more important factors to consider when deciding on an ARM is a formula of index and margin equals the interest rate. The index is what the lender uses to calculate your specific interest rate. Indexes can differ in how quickly they respond to interest rate fluctuations. Some common indexes used are Treasury bills (T-bills) and Certificates of Deposit (CD). The margin is a fixed figure which is added to the index to get the interest rate. Margins are typically about 2.5 percent.

Another important consideration is the frequency in which the mortgage rate is recalculated. Some ARMs adjust monthly, while others only adjust every 6 or 12 months.

Also, rate caps are used to limit the amount the rate can change within an adjustment period. An adjustable rate mortgage that adjusts every 12 months may be limited to a 1-2 percent change up or down. There should also be a lifetime rate cap to limit the rate change over the life of the loan which is usually around 5-6 percent higher than the start rate.

Before accepting an ARM you should figure out the payment at the highest rate allowed to see if you can handle the worst case payment.

Lastly, other lender fees should be considered with a request for a written total fees statement.

Fixed vs. ARM Payments

A fixed rate mortgage is just that, a fixed interest rate for the life of the loan. The payment will always stay the same without fluctuation, however, the risk is that if rates drop significantly you may be stuck with a higher rate.

ARM interest rates can fluctuate many times over the life of the loan, thereby, changing your monthly payment amount. ARMs offer potential interest savings because the start rate is typically lower than a fixed rate. Also, if rates drop or stay the same there will be a continued savings compared to a fixed loan. But, if rates rise an ARM will cost more than the fixed rate loan.

Choosing a Fixed-Rate vs. an Adjustable-Rate Mortgage

First, consider the risk you can take with the monthly payment amount changing. Do you have savings? Or are you budgeted to the max without any emergency savings? If you can't afford to pay your ARM at the highest payment amount you should steer clear of this type of loan.

Also, consider how long you plan to have the mortgage. Generally, ARMs are better for a mortgage of 5-7 years. If you plan to keep your mortgage for the long-term a fixed-rate mortgage may be the better, less stressful choice.

Lastly, if the thought of having an adjustable rate mortgage stresses you out...don't do it! The stress is never worth the potential savings. And, if rates drop significantly you may have the option to refinance to a lower rate anyway.

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About Author

Both Trey Peirson & Jill Kane are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Trey Peirson has sinced written about articles on various topics from Finances, Bad Credit Loans and Debt Consolidation. To get the best value for your money, be sure to compare fixed rate mortgages.Find out which mortgage lenders in your area offer. Trey Peirson's top article generates over 3600 views. Bookmark Trey Peirson to your Favourites.

Jill Kane has sinced written about articles on various topics from Credit Cards, Finances and Dental Practice. . Jill Kane's top article generates over 18100 views. Bookmark Jill Kane to your Favourites.

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