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What is a Fixed-Rate Mortgage?

This is the most common loan type and is very popular when interest rates are low. Fixed rates mortgages can be repaid over a fixed term with monthly payments of principal and interest. The term can be 10, 15, 20 or the ever popular 30-year term. The same percentage interest is charged over the life of the loan. The caveat to this type of loan is that you will probably not build up appreciable equity for the first several years of the loan few years of the loan as the interest in front loaded.

If you plan to stay in your home for some time a fixed rate loan may be a better option. The big advantage of this type of loan is that you can plan your finances, as you know that for the next few years the same amount will be paid to the mortgage.

You should also remember that it is probable your income will rise over the years and the mortgage amount will seem less burdensome as it remains the same.

Are There Any Disadvantages?
The disadvantages of this type of loan are that when interest rates are high the monthly payment is high and will be high over the term of the loan unless you refinance when rates are lower. Also when interest rates are high you may not qualify for a fixed rate loan for the amount you need, as the monthly payment may be too much for you to afford. If you decide to refinance on the loan later you may be required to pay an origination fee and point's refinanced need to be deducted from taxes over a 20 year period, not the year of the refinance.

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