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Fixed Rate Mortgages
Fixed-rate mortgages are very popular because
the interest rate and monthly payments are constant. Fixed loans
are generally amortized over ten, fifteen, twenty or thirty
years.
A fixed-rate mortgage is generally preferred
when the interest rate is relatively low and one intends to keep
the property for more than five to seven years. When rates are
relatively high, or if one intends to sell the property in fewer
than five to seven years, adjustable loans are generally
preferred.
The most common fixed rate mortgage is the
thirty-year fixed. Borrowers who want to pay off their loan
sooner may opt for a fifteen-year mortgage. If you are trying to
decide between a thirty-year and a fifteen-year loan, consider
the following:
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Paying your loan over fifteen years can save
you thousands of dollars in interest. Paying less interest
results in less of a tax deduction. Determine in advance if a
larger tax deduction (with a thirty-year loan) will offset the
benefits derived from paying less interest (with a
fifteen-year loan).
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The payment on a thirty-year loan can be
substantially less than the payment on a fifteen-year loan of
the same amount. You could obtain a thirty-year loan and
invest the difference in mutual funds, stocks, CDs, etc. If
you could earn a higher, after-tax rate on your investment
than the rate you pay on your mortgage, it may be advantageous
to invest the difference.
The final decision you make will depend on your
preferences. If your goal is to live debt free, then a fifteen
year mortgage may be right for you. If you goal is to maximize
your tax deductions, a thirty year loan may be best for you. |
