# Fixed Loans

## 10 Year Fixed Rate Mortgage

### A 10 year fixed rate mortgage is a loan with the same interest rate and payment over the entire 10 year life of the loan.

## More about 10 Year Fixed Rate Mortgage

A loan with the same interest rate and payment over the entire 10 year life of the loan. As one of the shorter loan terms available, 10 year fixed loans offer lower lifetime interest payments than similar loans with longer terms, but also have a higher monthly payment.

A 10 year fixed rate mortgage is a financing option that allows you to build equity relatively quickly. With this type of loan, the interest rate remains the same for the ten year term of the loan and is typically lower than that attached to a 30 year fixed rate mortgage.

A fixed rate mortgage is usually fully amortizing, meaning that your payments combine principal and interest so that the full amount of the loan is paid off after a set amount of years. With a 10 year fixed rate mortgage, the loan is fully amortized, or paid off, after 10 years as long as no changes have been made to the terms of the loan.

The two biggest advantages of a 10 year fixed rate mortgage are a lower interest rate and the ability to build equity more quickly. Since interest is the fee for borrowing the loan, it is nice to pay lowest rate possible. A 10 year fixed rate mortgage will save you a significant amount of interest over the life of a loan compared to a 30 year fixed rate mortgage. Also, since less of your monthly payment is going toward interest, more of the payment is going toward principal. This enables you to build own your home and build equity more quickly since more of your monthly payment goes toward the principal.

On the other hand, a 10 year fixed rate mortgage has higher monthly payments than a home loan with a longer term. The fact that the loan is due to be paid off in just 10 years, rather than 30 years for example, means that you have to pay more each month. This can lead to a very high monthly mortgage payment and may limit the price of the home that you can afford.

For example, say you wanted to take out a home loan of $160,000 and you could get a 6 percent interest rate with a 10 year fixed rate mortgage. At this rate your monthly payments would be $1,776.33. If, however, you took out a 30 year fixed rate mortgage at the same rate, your monthly payment would be $959.28. Over the life of the loan, however, you would pay $223,217.48 interest for the 30 year fixed while only $53,159.24 interest with the 10 year fixed. That is a big difference in amount paid in interest.

You need to know your long-term financial goals when deciding on the terms of a mortgage. Are you going to be in the house for the term of the loan? Is paying as little in interest as possible important to you? If the higher payment is not an obstacle and you like the idea of building equity quickly, a 10 year fixed rate mortgage may be right for you. However, if you most likely will be moving before the term of the loan has expired, there may be other financing options that make more sense.

## 15 Year Fixed Rate Mortgage

### A 15 year fixed rate mortgage is a loan with the same interest rate and payment over the entire 15 year life of the loan.

## More about 15 Year Fixed Rate Mortgage

A 15 Year Fixed Rate Mortgage is a loan with the same interest rate and monthly payment over the 15 year life of the loan. You generally pay a lower interest rate, pay less interest over the life of the loan, and build equity more quickly with a 15 year loan than with a loan carrying a longer term.

A 15 year fixed rate mortgage allows you to build equity relatively quickly. With this type of mortgage, the term of the loan is only a 15 years instead of the more typical 30 years. The monthly payments are higher with a 15 year mortgage than a 30 year mortgage, but a 15 year loan can provide many advantages if you can afford it.

A fixed rate mortgage is usually fully amortizing, meaning that your payments combine the principal and interest so that the full amount of the loan is paid off after a set amount of years. With a 15 year fixed rate mortgage, the loan is fully amortized, or paid off, after 15 years as long as no changes have been made to the terms of the loan.

With any loan, a portion of the monthly payment has to go to interest. This can be frustrating since your payment is not paying back the actual loan, but instead paying the fee for borrowing the money. Since the term on a 15 year fixed rate mortgage is half as long as a 30 year mortgage, the overall interest you pay over the life of the loan is less.

A 15 year fixed rate mortgage allows you to build equity in your home faster than if you had a 30 year fixed mortgage. Your monthly payments are higher with a 15 year mortgage, so you are paying more toward your principal.

An important factor to consider when choosing a loan is how long you plan to stay in the house. If you are likely to move within a few years, then the higher monthly payments of a 15 year mortgage may not be worth it to you. You’ll be paying more interest upfront even though you will not keep the mortgage that long. On the other hand, a 15 year fixed rate mortgage also means you’ll build equity faster. That equity is money that would be available to you when you sell or if you refinance.

Before getting a 15 year fixed rate mortgage, be sure to realize that with the benefit of lower interest rate and larger equity comes the drawback of higher payments. However, if you can afford the higher payment and want to build equity quickly, a 15 year fixed rate mortgage may be right for you.

## 20 Year Fixed Rate Mortgage

### The 20 year fixed rate mortgage is a good way to have fixed payments and shorten the term of your loan. You will build equity faster, pay less interest, and own your home sooner. Your monthly payments will be higher since the term is shorter.

## More about 20 Year Fixed Rate Mortgage

Instead of the typical 30 year mortgage, a way to build equity in your home faster is to get a 20 year fixed rate mortgage. With this loan product, you pay off the loan in 20 years and therefore usually get a lower interest rate.

A fixed rate mortgage is a fully amortizing loan. That means that the principal and interest combine so that the full amount of the loan is paid off after a set amount of years. With a 20 year fixed rate mortgage, the loan is fully amortized, or paid off, after 20 years as long as no changes have been made to the terms of the loan.

A drawback to a 20 year fixed rate mortgage is higher monthly payments. Since you are paying off the loan faster than a 30 year mortgage, the monthly payments are higher. However, a 20 year fixed rate mortgage may be a good compromise for someone wanting to build equity quickly, but not wanting the steep payments of a 15 year fixed rate mortgage.

A 20 year fixed rate mortgage offers a lower interest rate than a 30 year fixed. With the lower interest rate and with more of the monthly payment going toward the principal, you will pay less in interest over the life of the loan. For example, if you are purchasing a house for $200,000 and you put down 20 percent, you would borrow $160,000. Your monthly payment for a 30 year fixed rate mortgage with a 7 percent interest rate is $1,064.48. However, over the life of the loan, you will pay $223,217 in interest. That is more than the original cost of the house! With a 20 year fixed rate mortgage at a 6.5 percent interest rate, you only pay $126,299 in total interest. The monthly payments are $1,192.92, not that much more that a monthly payment for a 30 year fixed. You pay 43% less interest but only raise your monthly payment 12% with a 20 year fixed rate mortgage.

If you want to pay as little in interest as possible but also keep your payments as low as you can, a 20 year fixed rate mortgage may be a good fit for you.

## 30 Year Fixed Rate Mortgage

### The 30 year fixed rate mortgage is one of the most popular home loans. Many people like the fixed interest rate and lower monthly payments. But since the term of the loan is long, you will pay more interest over the life of the loan.

## More about 30 Year Fixed Rate Mortgage

A 30 year fixed mortgage is possibly the most common type of mortgage loan. It has several characteristics that make it such a popular choice when financing a home purchase.

One of the key features of a 30 year fixed mortgage is its fixed interest rate. When you acquire the loan, the interest rate that you get at that time is the interest rate that you keep for the duration of the loan. Your only option to change the interest rate is if you choose to refinance. If you are able to lock a great interest rate when getting the mortgage, you are set. That is the rate for the next 30 years, assuming that you own the house that long.

Another attractive characteristic of a 30 year fixed mortgage is its relatively low monthly payment. Since repayment of the loan is stretched out over 30 years, that keeps the monthly payment from getting too high.

The monthly payments are the payments that you make toward the principal and the interest to pay off the loan. A fixed rate mortgage is a fully amortizing loan. That means that the principal and interest combine so that the full amount of the loan is paid off after a set amount of years. With a 30 year fixed rate mortgage, the loan is fully amortized, or paid off, after 30 years as long as no changes have been made to the terms of the loan.

For example, you want to purchase a house for $200,000. You have saved enough to put down 20 percent, so your loan amount is $160,000. At a 7 percent interest rate, your monthly payment will be $1,064.48. You can also put down less than 20 percent. Let’s say you only have 10 percent for a down payment. Now your loan amount will be $180.000 with monthly payments of $1,197.54. However, usually you have to pay PMI (private mortgage insurance) when you put down less than 20 percent. PMI makes your monthly payment higher.

One drawback, as with any loan, is that you repay more than you borrowed. This is because of having to pay interest. After thirty years, this can really add up. For example, on that $160,000 loan, you pay $223,217.48 in interest alone by the end of the term of the loan. Including the principal brings the total amount paid for the loan to $383,217.48. However, if you move or refinance before the term of the loan expires, you obviously do not make all of those interest payments.

A 30 year fixed rate mortgage can be a good option for financing a home purchase. If you intend to stay in the house for many years, it may be the right loan for you. If it is important to keep your monthly payments low and manageable, the 30 year mortgage can help you to do that. It is a good, safe choice for a mortgage loan since it is probably the most popular mortgage product.

These materials are not from HUD or FHA and were not approved by HUD or a government agency.

CA Bureau of Real Estate – Real Estate Broker – Cal BRE License Number 01524786 – NMLS Unique Identifier 365481”