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How Low an Interest Rate Can You Expect?
Shorter term loans offer lower interest rates and are divided into two types. A Fixed mortgage means that the rate is locked in for the life of the loan. Adjustable Rate, also called an ARM or variable rate note, is a note that generally offers lower payments for the first year and then changes periodically based on the terms and conditions of your note. Paying discount “points” can lower your interest rate. If your loan requires you to pay points or if you want to buy “down” the interest rate using points, remember that one point equals 1% of the loan amount.
Choosing the Right Mortgage
If you want the stability and predictability of a set rate for the life of your loan, then a fixed rate mortgage may be for you. Usually the longer the term of the mortgage, the more interest you pay over the life of your loan. Though, a longer term means your monthly mortgage payments will be less than they would be with a comparable shorter-term mortgage.
30 year vs. 15 year fixed rate mortgage.
If you’ve found a home you plan to live in for 10-30 years, consider a fixed-rate loan. It’s predictable and stable since the interest rate is set for the full length of the loan. Because the monthly payment for the principal and interest stays the same for the life of the loan, it’s easier to plan a budget. Most lenders offer many fixed-rate loans with terms to fit your budget, including loans that require no money down.
A 30-year mortgage will have a lower monthly payment and a higher interest rate than a 15-year mortgage. You'll have a smaller monthly obligation but you'll pay more for your house over time because you're paying it off with interest for a longer period. On the other hand, a 15-year mortgage will have a higher monthly payment and a lower interest rate so you'll pay less for your house because you're paying it off in a shorter period.
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