30 Year Fixed Mortgage Rates The Basics
Posted by Brian Armstrong on September 13th, 2009
If you have not applied for a new home loan in quite some time, this article will explain the very basics of the home loan known as the fixed rate mortgage. This is a relatively easy mortgage to understand and is familiar to individuals who are purchasing or refinancing a home. As this is one of the biggest expenses you may encounter in your life, knowing a little about this type of mortgage will lay a foundation for you to be able to research both fixed rate mortgages as well as other mortgage products which have their foundation in this basic model.
This fixed rate mortgage is one of the more common mortgage products. Typically when people discuss the need to get a home loan or a mortgage, or even a refinance, they’re often referring to the fixed rate mortgage. Typically when you hear an advertisement for a mortgage company or other lending institution, you’ll most likely hear rates quoted for a 30 year fixed mortgage. There are certain requirements when companies advertise mortgages that are based on a “truth in lending” act sponsored by the federal government. And although not followed directly in each state, when you hear ads for a specific rate, there should be an indication of what type of mortgage product that rate is associated with.
These fixed rate mortgages are most commonly setup with 15 or 30 year term, but also have options for a 10 year or 20 year, or even a 40 year mortgage. The longer the mortgage term, typically the lower the interest rate as the bank or financial institution that is extending the loan will typically make more money, at least via interest paid on the loan. This is why the shorter term rates are typically a higher rate.
One of the main benefits to the fixed rate mortgage is that your monthly payment won’t change for the duration of the loan. In many companies in the US, you’ll also have the advantage of being paid every 2 weeks. If you setup your mortgage to work on this same two week payment schedule, you’ll end up making 26 payments per year (52 weeks per year / 2 for every other week) which is the equivalent of 13 months of payments instead of 12 months. Of course this option can be worked out at the time you’re applying for your loan as well.
There are several loan products or mortgage programs that have what is known as a “balloon” payment where payments are made either directly to the interest as in the case of an interest only loan or even interest and principal with a lump sum due at the end of a given period (usually a couple of years). The fixed rate mortgage is different in this regard, at least the traditional style of mortgage here this article discusses. When you pay off your mortgage with a fixed rate mortgage, you owe nothing more to the bank or lender. There is no need to refinance your home or come up with cash to pay towards a lump sum payment or balloon payment. This style of mortgage is probably the most conservative of the various mortgage products.
The fixed rate mortgages often make the most sense when the owner will be in the home for the duration of the loan, or in a situation where the home is appreciating in value. The reason for this is that for the first 22 years of the loan (assuming a 30 year mortgage), you’ll be paying more in interest than you will in principal. This can be a bit disconcerting, but this also has the advantage that when you are able to submit additional funds toward the loan, these funds are applied directly to the principal. This is sometimes known as a mortgage acceleration program of which there are several types.
This conservative mortgage program is possibly the easiest to understand of the mortgage products that are available. The key to success with this style or any other style of mortgage is to find a loan officer that you can trust who will guide you through the process of pricing loans, understanding the terms of a loan, whether a fixed rate, variable, interest-only, or other loan, and basically someone you can work with who can become familiar with your situation and provide appropriate advice for what your home ownership goals and objectives are. A good loan officer will typically be familiar with other loan products that will work for you as well.
Brian Armstrong is a licensed loan officer in the state of Utah. He actively promotes information about Utah mortgage rates on his website. You can also find some detailed information about the services and types of home loans Brian offers from his website about mortgages in Salt Lake City.