Mortgages come in all shapes and sizes, making it difficult for a potential home buyer to make up his or her mind on what kind of loan to opt for. In this blog post, we will be focusing solely on fixed rate mortgages – how they work and the benefits of singing up for one.
Fixed rate mortgages are easy to explain. You get an interest rate for a mortgage and it remains fixed, meaning that the monthly payments throughout the lifetime of the mortgage remain the same. The only things you need to decide about a fixed rate mortgage is what the rate will be, and over what period to amortize the loan. Amortization is the fixed period during which the borrower repays the loan. If the amortization period is ten years, then the loan will be paid off in exactly ten years.
The interest rates and how much interest the borrowers will pay throughout the lives of these loans differ. The longer the loan’s term, the lower the payment – simply because the payback period is longer. The time over which a loan amortizes affects how much of each monthly payment applies to interest or principal. In fixed-rate mortgages, most of the initial payments go to interest and very little goes toward repaying principal. But when the loan term is shortened say from 30 to 15 years, the loan is paid down faster. As time passes, the interest portion of the loan decreases, and the borrower gains more equity on the principle (the value of the property).
When a buyer opts for a fixed rate mortgage option, the decision is often not based on the current market, but more on the individual’s personality, needs and financial status. Fixed rate mortgages are a good choice for risk adverse borrowers or for buyers who plan on staying in their homes for a long time.
Sky Financial Corporation – The Mortgage Center offers multiple loan options to our clients. Contact us today to schedule an appointment with one of our financial associates. 1-800-472-9791.