This article will help aspiring homebuyers or even those looking to refinance learn more about traditional 30 year mortgages or other fixed rate mortgage products. Knowing the basics of mortgages will help you determine whether the broker, bank or loan officer you choose to work with is in your best interest. This article provides basic information on these types of traditional home loans.
For those of you who are new to mortgages or new to the process of applying for a home loan, this article will be a valuable resource to introduce you to basic fixed rate mortgages. This is one of the easier to understand mortgages as well as relatively easy to calculate. A basic understanding of fixed rate mortgages will help you understand how other mortgage products might differ from fixed rate mortgages, but it will also help you ask smart questions when talking to and evaluating loan officers you might potentially work with.
This fixed rate mortgage is one of the more common mortgage products.
Usually when people discuss the need to get a home loan or mortgage, or even refinance, they are often referring to a fixed rate mortgage. Usually when you hear an advertisement for a mortgage company or other lending institution, you will most likely hear the quoted rates for a 30 year fixed mortgage. There are certain conditions when companies advertise mortgages that are based on the “truth in loan” act sponsored by the federal government. And while not being followed directly in every state, when you hear an advertisement for a certain rate, there should be an indication of what type of mortgage product the rate relates to.
Fixed rate mortgages have a specific time period with them, much like a 30 year fixed rate mortgage. There are also 15 years which is perhaps the second most common. I’ve also looked at 20 year and 40 year mortgages. Lenders have different programs that will work with what you are looking for. There are enough lenders out there that it will be rare to find a loan officer who can’t provide you with multiple options with the duration of your loan.
Fixed rate mortgages have the same payment for each period.
The benefit here is that you can base your monthly or even biweekly budget on the amount you will pay each month against your mortgage. As rates do not change, so do monthly payments. This makes fixed rate mortgages very predictable.
Another benefit to a fixed rate mortgage is that at the end of the loan, you don’t have balloon payments or a need to make other money that you haven’t paid off. Some mortgage products have balloon payments that will require you to come up with additional funds at the end of your tenure or cause you to refinance the balance to look after your home.
On a typical 30 year fixed rate mortgage, you will pay your monthly payments a percentage of that amount goes towards principal and another percentage towards interest. This is done on a sliding scale, so the first years of the mortgage, you will pay more interest to the bank than it is to pay off your loan. It’s like the one designed by the bank financing this mortgage. Their hope is that they get their interest paid to them before you are “allowed” to use more of your regular monthly payments to go to the principal. This is all done behind the scenes, but it’s interesting to know that you won’t start paying more on your principal than in interest until your 22 year mortgage. Nothing prevents you from paying your mortgage early, however, and it may be a very good idea depending on your life situation.
Fixing your first fixed rate mortgage or even refinancing for the 10th time shouldn’t be a complicated process. The key to solving this is finding a loan officer you can trust who will work with you and educating you as needed so that you understand what you are paying for. Since this is such a large dollar amount that you would normally pay for the house, there are ways that you could be caught paying more than you should and even a small percentage change over the life of the loan could result in you paying thousands of dollars more in interest. There are plenty of mortgage calculators out there too that you can use to give you some rough estimates.