Fixed Rate Mortgages

Rating:  Conservative/Low Risk

Description:  A Fixed Mortgage is the most conservative and traditional loan program available. The interest rate and monthly payment are fixed over the life of the loan.  After the last payment is made the loan will be paid off (amortized), and the property is owned outright. The terms currently available are: 10, 15, 20, 25, and 30 years. Odd terms- 8, 11, 14 years have recently become available, but the most common types of fixed rate mortgages are still 30 & 15 years.  

The shorter the mortgage term, the faster the loan is paid off.  In order to pay off the loan more quickly, shorter terms have higher monthly payments, which can either discourage or prevent some borrowers from qualifying. Fixed Rate Mortgages with shorter terms have lower interest rates.  This coupled with the fact that these loans are paid off more quickly result in a huge amount of interest savings over the life of the mortgage when compared against a 30 year mortgage. The largest spread in interest rate is typically seen between 30 year fixed and 15 year fixed mortgages.


What are the Pros and Cons of a Fixed Rate Mortgage?

Pros

  • Stability.  The Fixed rate ensures that the monthly payment is the same over the life of the loan.  

  • Avoid future refinance costs.  You will not incur refinance costs as you would with an ARM when it adjusts to a higher rate.  Note that refinancing is more expensive in Florida than in other states because the State of Florida taxes closings.   

  • Maximum interest deduction for taxes.

  • Peace of mind of not having to think about rates or worry about going through the process again.


Cons

  • Higher interest rate than what you would pay on an ARM (adjustable rate mortgage).  

  • Fixed payment over the life of the loan does not suit all borrower scenarios.  Borrowers may be better off opting for a program with a lower initial monthly payment  if:

    • They plan on selling the property in just a few years

    • Plan to pay-off or pay-down the mortgage in the near future.

    • Expect a large increase in salary in the next few years and want to keep the initial monthly payments lower.