Mortgages Work: Introduction to 30-Year Loans vs.
are as many types of mortgages to choose from as
there are types of houses to buy. Here you'll learn
the pros and cons of a 30-year fixed mortgage and
pros and cons of a 15-year fixed mortgage.
offer several types of mortgages, but the most
common are fixed-rate mortgages. These loans feature
fixed rates and monthly payments, generally for
15-year and 30-year periods. They're popular because
consumers balk at the thought of their house payment
rising and falling with interest rates and whenever
rates are low, fixed-rate mortgages are very
Fixed-rate loan borrowers face one major choice: 15
year or 30 year? For some, a 30-year loan makes more
sense. For others, a 15-year one does. Here are some
pros and cons of each.
Fixed Rate Advantages
Offers the chance to borrow money on a long-term
basis without having to worry about the interest
rates or payments changing.
Monthly payments are lower than those on 15-year
loans because the interest is amortized over a
monthly payments free up money that borrowers can
pour into investments that yield more than their
interest bill increases the amount consumers can
deduct at tax time, potentially reducing or
eliminating their federal income tax liabilities.
Fixed Rate Disadvantages
Borrowers build equity at a very slow pace because
payments during the first several years go largely
toward interest rather than principal.
overall interest bill is much higher because of the
long amortization term.
interest rates are higher than on 15-year loans.
Fixed Rate Advantages
Borrowers build equity much more quickly due to
shorter amortization schedules.
Overall interest bills are dramatically lower than
those on longer-term loans.
interest rates are lower than 30-year loans.
15-Year Fixed Rate Disadvantages
Monthly payments can be significantly higher than
those on 30-year loans.
Restricts home buyers to smaller house than they
might be able to afford with longer-term loans.
Adjustable-Rate Mortgages (ARMS)
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