If you are new to mortgages or just don’t remember going through the process the last time you financed a home purchase, this article will explain some important features of the loan known as the fixed rate loan or fixed rate mortgage. These are pretty easy to come by and the product that is the most familiar to people purchasing or refinancing homes. A purchase of a home is most likely the largest outlay of funds you’ll experience during your life, so understanding the fixed rate mortgage is important knowledge to have.

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 most common fixed rate mortgage is a 30 year mortgage. There are also other options including a 15, 20 and even a 40 year mortgage product. This may change in the future as well, but these are the most typical offers you’ll see when evaluating your options. The longer the mortgage term, the lower your interest rate may be, but you’ll typically pay more in interest over the life of the loan. This is why you’ll see a 15 year mortgage with a higher rate than a 30 year mortgage typically. The payments for a 15 year are higher as well simply because the loan amount may not change and to pay off your home in a shorter period, it will require higher monthly payments. Simple math I know, but better to not assume too much.

Fixed rate mortgages have the same payment for each period. The benefit here is that you are able to base your monthly budget or even bi-weekly budget from the amount you’ll be paying each month towards your mortgage. Because the rate doesn’t change, neither does the monthly payment. This makes the fixed rate mortgage very predictable.

There are several loan products or mortgage programs that have what is known as a “balloon” payment where payments are made either directly to the interest as in the case of an interest only loan or even interest and principal with a lump sum due at the end of a given period (usually a couple of years). The fixed rate mortgage is different in this regard, at least the traditional style of mortgage here this article discusses. When you pay off your mortgage with a fixed rate mortgage, you owe nothing more to the bank or lender. There is no need to refinance your home or come up with cash to pay towards a lump sum payment or balloon payment. This style of mortgage is probably the most conservative of the various mortgage products.

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.

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