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Saturday, November 29, 2008

A Look at the Cheapest Fixed Rate Mortgages

By Gugu Martini

Considering whether you need a 30 or 15 year fixed mortgage rate is important for people looking to buy a home and concerned about their monthly payments. Many of us are buying homes later in life these days so it is not unreasonable to have the house paid off early. There are always things to take into account before signing documents. It is always a good idea to confirm that the interest rate does not alter during the term of the mortgage.

It is always wise to avoid agreements that do not appear to have any negative aspects because they invariably have but are hidden. Interest rates remain the same throughout the life of the loan for 15 year fixed rate mortgages. This is of great benefit for anyone that does not like surprises. When we were looking to buy a home, my wife and I decided to go for a loan with a 15 year fixed mortgage rate.

Even though it was important for us to pay off our loan at the earliest possible opportunity, we did not want high, unrealistic monthly payments which we would have trouble maintaining. It became obvious that we had to look at fixed rate mortgages over a longer period and not just 15 year plans. We did not really like the prospect of having a mortgage as we approached retirement so were really hoping to get one of the loans with 15 year fixed mortgage rates. We were worried about the emphasis placed on early completion of the mortgage.

After taking everything into consideration we decided on a 30 year loan instead. There were many things that factored into this decision.The main reason was that I found out my wife was pregnant. My wife was going to raise our child from home so her addition to the monthly income would be restricted. Our monthly payment would have been too high if we had committed ourselves to the 15 year fixed mortgage plan. We could see the financial problem of getting in too deep even though there were benefits to a shorter loan period. Despite the trepidation of having a longer term loan, it did reduce the repayments considerably.

Making a few additional lump sum payments during the year helps bring down the amount owed. Those few extra payments also help reduce the number of years you have to pay the loan over. This is well worth it in the long term but it does require some discipline. Although we would have much preferred a loan with a 15 year fixed mortgage rate we had to take our needs and abilities into consideration. In retrospect, everything worked out ok for us by going down this road.

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