These fixed rate mortgages also come in 15-year terms. Even though
the loan term is only half of the 30-year mortgage loan, the payments
are not double as you might expect. This is due to the way interest is
calculated. The monthly mortgage payments on a 15-year loan are higher
than those on the same amount mortgaged over 30 years, but you may be
surprised at how little that difference really is. If you are
considering a 15-year mortgage, you may want to run the numbers on a
mortgage payment calculator to determine if you can afford the
payments on a 15-year mortgage.
In addition to the traditional fixed rate mortgage, there are variable
rate mortgages on the market as well. As opposed to fixed rate
mortgages, these adjustable rate mortgages will see their monthly
payments fluctuate as interest rates rise and fall. There will be a
cap above which the interest rate cannot rise, as well as a rate and a
time at which the adjustable rate mortgage can be converted to a fixed
rate mortgage.
As you can imagine, a variable rate mortgage is great when interest
rates are steady or falling and not so great when interest rates are
on their way up. A rise in interest rates means a rise in your monthly
mortgage payment, so it is important to make sure that you can afford
the monthly payments even if the interest rate rises to its highest
possible level.
No matter what type of mortgage you decide on, the decision to
purchase a home is a significant financial decision. It is important
that the buyer understand all the costs associated with home ownership
– things like insurance, taxes and utilities can really add up. Once
the buyer is ready to make the plunge, however, they may find that a
home is their best investment in addition to a great place to live
