Fixed rate mortgages are usually offered for 15-year or 30-year terms. That means if you pay the mortgage every month, after the 15 or 30 years the mortgage is paid off. Lenders are now offering additional mortgages for over 30-year terms in order to spread out the amount of monthly payments for the more expensive homes.
The advantage of fixed rate mortgages is that the buyer knows how much each mortgage payment will be. The mortgage is not affected when interest rates go up or down. This gives the buyer stability in his or her budget and allows him or her to plan for costs years in advance.
On the negative side, in a fixed rate mortgage the borrower builds equity in the home at a very slow rate. That is because of the way the loan is amortized (calculated). Mortgage payments are not split evenly between paying off interest and principle, the amortization table pays more on interest in the early years so the lender gets its money back first.
For a 30-year loan, the first 23 years of the loan the buyer is paying off more of the interest, which is deductible on the buyer’s income tax. For the 15-year loan, it is usually made at a lower interest rate, which makes payments higher than the same loan would be for 30 years. In 15-year mortgage loans, the equity that the borrower has in the house increases faster than in the 30-year mortgage, but the payments are larger.
Right now, in a buyer’s market when mortgage rates are going up, the fixed rate mortgage is considered the gold standard, the one most buyers want. The only concern with a fixed rate mortgage is that you lock in a low rate as soon as you can.