Fixed Rate Loans come in a few different shapes and sizes. If you are considering refinancing your adjustable rate mortgage to convert to a fixed rate loan, please review some of the most popular fixed rate loan options, and evaluate their pros and cons.
30 Year Fixed Rate Loan
25 Year Fixed Rate Loan
20 Year Fixed Rate Loan
15 Year Fixed Rate Loan
30 Year Bi-Weekly Fixed Rate Loan
30 Year Fixed Rate Cash Flow Option Loan
Adjustable Rate Mortgages with Fixed Rate Loan Periods
Convertible Fixed Rate Loan
Fixed rate loans offer borrowers stability without the anxiety of payment increases in the future.
In todays market where rates and payments are adjusting to record highs, many borrowers are changing their adjustable rate mortgage over to fixed rate products.
There are numerous choices available when shopping for a fixed rate mortgage loan product. Your first step should be to contact a mortgage broker to discuss your options and goals. No two borrowers are alike and its your mortgage brokers job to find the loan program that best suits your unique situation.
A fixed rate loan can be a prudent choice because you know that your interest rate will not change over the life of the loan. A fixed rate loan provides security and protection from an increase in interest rates.
30 Year Fixed Rate Loan
Description: The most popular mortgage in America. Fixed Rate and Payment for 30 years designed to pay off the house by the end of the loan by including both Principal & Interest in the monthly payments.
Pros of a 30 Year Fixed Rate Loan:
30 Year Fixed Rate Loans are utterly predictable, there are no surprises. Due to the way 30 year fixed rate loan products are amortized, the payments over the first half of the loan are primarily interest and therefore tax deductible in most cases. A variety of government sponsored programs are available to make this particular variety of fixed rate loan more accessible to homeowners.
Cons of a 30 Year Fixed Rate Loan:
Payments on a 30 year fixed rate loan are comparatively higher than many adjustable rate loans, although the gap between 30 year fixed rate loans and ARM loans is narrowing. 30 year fixed rate loans
Fixed rate mortgages might be right for you if:
Want the security of a fixed principal and interest payment.
Think that interest rates will go up.
Are on a fixed or limited budget.
30 Year Fixed Rate Loan with Cash Flow Option
Description: A newcomer, the 30 year fixed rate loan with cash flow option offers a fixed rate for 30 years with 4 payment options ranging from a minimum payment which pays less than the required amount of interest to a 15 year fixed rate payment which allows payment of additional principal. Designed to pay off the home in 30 years by recasting in 10 years to a full principal and interest mortgage.
Pros of a 30 year fixed rate loan with cash flow option:
Very low minimum payment option. 30 year fixed rate loan programs with cash flow options offer the flexibility of an option arm with the security of a long term fixed rate, allowing borrowers who can capitalize on the added cash flow of making a minimum payment to defer interest at will for the first 10 years, effectively trading home equity for cash on an elective, optional basis as needed. Like a 30 year fixed rate loan with a built in home equity line of credit. A popular option amongst borrowers who wish to minimize mortgage payments for the first several years in their property, are interested in maximizing free cash flow over paying off their mortgage over the near term, and have substantial equity in their home. Allows borrowers with substantial business or passive income streams to maximize the amount of taxable gross income attributable to long term capital gains tax by minimizing monthly debt service requirements, effectively reducing income tax liabilities. Popular and appropriate for the self employed, investors, high net worth individuals, and wage earners with substantial periodic or bonus income. Very low minimum payment option provides borrowers with a much smaller monthly payment to come up with in the event of job loss, illness or disability, providing a fallback strategy and hedge against these most common factors leading to foreclosure. Fixed Rate for 30 years lends predictability to negative amortization characteristics which is a chief criticism of option ARM mortgages offering the same features. Often the only viable choice for borrowers refinancing out of an option ARM mortgage. Easy to qualify for if there is at least 20% equity in the home (no minimum credit score requirements in many cases), and fixed rates available are often lower than those otherwise available to borrowers with credit scores lower than 700 otherwise.
Cons of a 30 year fixed rate loan with cash flow option:
30 year fixed rate loan programs with cash flow options are only available at present to borrowers with 20% or more equity in their homes. Negative amortization features are considered a plus and a minus, however for borrowers who wish to pay off the mortgage on the home they are currently in, and can afford to make a larger payment today, a 15 year fixed rate loan may be the better choice, especially if you have a credit score over 760. Not recommended for borrowers who can only make the minimum payment, as the loan will convert to a full principal and interest mortgage at 10 years or the second recast, whichever is earlier. A very versatile financial product for special situations, which like a sharp knife can be a powerful and efficient tool in the right hands, but a trip to the emergency room in the wrong ones. If you want to own your home free and clear, can make a larger payment each month, have substantial assets and more than enough free cash flow, select a mortgage with a higher minimum payment to pay off your mortgage more quickly and save interest.
It's never too early to start looking into getting out of that ARM. A mortgage loan professional can help you work out a timeline for refinancing into a fixed rate mortgage, which will help you avoid a potentially (and almost certainly) costly adjustment.
Because Fixed rates are so low in todays market, unless one is getting an option ARM, Long Term Fixed rate mortgages remain the best option for most borrowers.
Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term. The most common fixed rate loans are 15 year and 30 year mortgages.