Lots of Variables with Fixed-Rate Mortgages

When selecting a fixed-rate mortgage, a prospective borrower has to determine how many years to finance the loan. Some financial institutions offer 10- and 20-year fixed-rate mortgages as well as 15- and 30-year fixed-rate home loans. For the purpose of comparison, this worksheet takes a look at 15-year and 30-year fixed-rate loans. The payments on a 30-year mortgage are generally lower than 15-year loans, but their interest rates tend to be higher. The lower payment comes from spreading out the loan over twice as many payments. Because of the longer time frame, a 30-year mortgage owner pays more in interest payments than a 15-year mortgage holder.

Tip: Payment Practices. Depending on the loan, a home buyer who chooses a 30-year mortgage may have the option to make extra payments. In a sense, this enables the borrower to treat the long-term loan like a short-term one.

When selecting a fixed-rate mortgage, a prospective borrower has to determine how many years to finance the loan. Some financial institutions offer 10- and 20-year fixed-rate mortgages as well as 15- and 30-year fixed-rate home loans. For the purpose of comparison, this worksheet takes a look at 15-year and 30-year fixed-rate loans. The payments on a 30-year mortgage are generally lower than 15-year loans, but their interest rates tend to be higher. The lower payment comes from spreading out the loan over twice as many payments. Because of the longer time frame, a 30-year mortgage owner pays more in interest payments than a 15-year mortgage holder.

Fast Fact: Go Short. Thirty-four percent of borrowers who refinanced a 30-year fixed-rate loan in the first quarter of 2015 opted for a shorter term. Source: FreddieMac, 2015

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