30 Year Fixed Mortgage Rates The Basics
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 the basic fixed rate mortgage. This is one of the easier mortgages to understand and also relatively easy to calculate. A basic understanding of the fixed rate mortgage will help you understand how other mortgage products may differ from the fixed rate, but also help you to ask intelligent questions when speaking with and evaluating a loan officer you may potentially be working with.
This fixed rate mortgage is one of the more common mortgage products. Typically when people discuss the need to get a home loan or a mortgage, or even a refinance, they’re often referring to the fixed rate mortgage. Typically when you hear an advertisement for a mortgage company or other lending institution, you’ll most likely hear rates quoted for a 30 year fixed mortgage. There are certain requirements when companies advertise mortgages that are based on a “truth in lending” act sponsored by the federal government. And although not followed directly in each state, when you hear ads for a specific rate, there should be an indication of what type of mortgage product that rate is associated with.
The fixed rate mortgages have a specific time period with them, such as a 30 year fixed rate mortgage. There are also 15 years which are probably the second most common. I have also seen 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 would be uncommon to find a loan officer who couldn’t give you multiple options with your loan duration.
One of the main advantages to the fixed rate mortgage is that the rate doesn’t change. This can be great as your payment may stay low for the duration of the loan even if inflation or other financial considerations may change over that same period of time. Some mortgage programs also have a bi-weekly payment option where you’ll pay your mortgage every two weeks. Assuming your monthly mortgage was $2000 per month, this is broken down to about $1000 every two weeks which is nice because it has two benefits, one benefit is that it matches some pay structures, i.e. many companies in the US typically pay your salary every 2 weeks. Of course this also means that instead of 12 payments of $2000 or $24,000 per year, you’ll pay $1,000 every other week which would be 26 payments (52 weeks per year / 2 (every other week)). The total amount of funds that would then contribute to your loan amount would be $26,000 which would pay down your loan more this way or reduce your overall payment amount. Consult your loan officer for details on the bi-weekly payment plan.
The other benefit to a fixed rate mortgage is that at the end of the loan, you don’t have a balloon payment or the need to come up with any other money that you haven’t already been paying. Some mortgage products have a balloon payment that would require you to come up with additional funds at the end of the term or cause you to refinance the balance in order to keep your home.
On a typical 30 year fixed rate mortgage, you’ll pay your monthly payment of which a percentage of that amount would go toward the principal and the other percentage goes towards interest. This is done on a sliding scale, so the first years of the mortgage, you’ll be paying more in interest to the bank than paying down your loan. This is as designed by the banks who fund these mortgages. Their expectation is that they get their interest paid to them before you’re “allowed” to use more of your regular monthly payment to go towards the principal. This is all done behind the scenes, but it is interesting to know that you won’t start paying more towards your principal than interest until year 22 of your mortgage. There isn’t anything to prevent you from paying down your mortgage early, however, and may be a very good idea depending on your life situation.
This conservative mortgage program is possibly the easiest to understand of the mortgage products that are available. The key to success with this style or any other style of mortgage is to find a loan officer that you can trust who will guide you through the process of pricing loans, understanding the terms of a loan, whether a fixed rate, variable, interest-only, or other loan, and basically someone you can work with who can become familiar with your situation and provide appropriate advice for what your home ownership goals and objectives are. A good loan officer will typically be familiar with other loan products that will work for you as well.
Brian Armstrong is a licensed loan officer in the state of Utah. He actively promotes information about Utah mortgage rates on his website. You can also find some detailed information about the services and types of home loans Brian offers from his website about mortgages in Salt Lake City.
