Interest rate on 20 year mortgage

There are lots of ways to finance a home in today's improving economy. There are low-downpayment options and no-downpayment options; loans for primary residences and loans for investors; and, there are even specialized loans available to members of the military.

For all mortgage applicants, though, it will eventually be time to decide whether to use a "fixed-rate" or "adjustable-rate" mortgage. Each has its merits and drawbacks, and with a little bit of knowledge, you'll be in position to decide which loan type is best for you.

What Are Fixed Rate Mortgages?

A "mortgage" is a loan used to finance a home. In a mortgage transaction, your home is used as collateral while the home is in repayment. Repayment periods typically last between five and thirty years. some mortgages are for lesser number of years, and others are for longer.

The typical U.S. mortgage will range in size from $50, 000 to $2 million, however, some banks will issue mortgages for smaller amounts and others will make loans of $4 million or more.

Home buyers use mortgages to fund whatever amount of a home's purchase price they can't - or won't - pay with cash.

For example, a home buyer purchasing a $200, 000 home may have $10, 000 saved to pay toward the home. The remaining $190, 000 will be mortgaged, and the buyer will repay its bank the borrowed amount over time, according to the terms of the loan.

The terms of a mortgage loan will vary by loan, accounting for such loan traits as mortgage interest rate, mortgage loan size, and length of the mortgage loan.

Each of these traits are at the borrower's discretion, too. If you want your mortgage rate to be lower, you can ask for it. If you want your loan size to be lower, you can ask for that, too.

You can also choose whether your mortgage interest rate will be fixed for the length of your loan; or whether it can adjust. A loan of the former type is known as a fixed-rate mortgage. A loan of the latter type is known as an adjustable rate mortgage.

Fixed-rate mortgages are far more common than adjustable-rate ones; and the most common fixed-rate mortgage is the 30-year fixed rate mortgage. Since 2011, however, shorter-length loans such as the 15-year fixed-rate mortgage have gained market share.

The Primary Benefit Of A Fixed-Rate Mortgage

There are reasons to choose a fixed-rate mortgage over an adjustable-rate mortgage, just as there are reasons to choose an adjustable-rate mortgage over a fixed-rate one. Choosing the loan which is best for you is a matter of preference.

The top reason homeowners choose fixed-rate mortgage is because the fixed-rate mortgage is predictable. Each month, until your loan is repaid, your mortgage payment remains the same.

For some households, the unchanging nature of a fixed-rate mortgage feels "secure". It can be simpler to plan a financial future when you know exactly how much you'll owe month after month after month.

However, this kind of mortgage rate stability comes at a cost.

With an adjustable-rate mortgage, over time, a bank can change your interest rate to better match market conditions. This is a "sharing of risk" between bank and borrower. In exchange for sharing such risk, adjustable-rate mortgage borrowers get access to lower mortgage rates.

30-year fixed mortgage rates and 15-year fixed rate mortgage rates get "pumped up" by lenders because, in a fixed-rate transaction, the bank bears all of the risk.

30-Year Mortgage Rates or 15-Year Mortgage Rates?

Fixed-rate mortgages operate as exactly as they're named. For the length of the loan, the mortgage rate of the loan remains "fixed". As a result, the payment on the mortgage remains fixed, too.