U.S. Government Printing Office
Superintendent of Documents, Mail Stop:
SSOP, Washington, DC 20402-9328
Federal Trade Commission
For example, suppose you borrow $50,000 at 13 % for 30 years. Your monthly payments on this loan would be $553.10. Over 30 years, your total obligation for principal and interest would never exceed this fixed, predetermined amount.
Fixed rate mortgages are usually available at higher rates than many other types of loans. But, if you can afford the monthly payments, inflation and tax deductions may make a fixed rate mortgage a good financing method, particularly if you are in a high tax bracket and need the interest deductions.
Traditionally both interest rate and monthly payments are fixed for the life of the loan.
Fifteen-Year MortgageThe fifteen year mortgage is a variation of the fixed rate mortgage that is becoming increasingly popular. This mortgage has an interest rate and monthly payments that are constant throughout the loan. But, unlike other plans, this loan is fully paid off in only fifteen years. And, it is usually available at a slightly lower interest rate than a longer-term loan. But it also requires higher payments.Suppose you buy a house for $100,000, and after making a $15,000 down payment, you still need to borrow $85,000. You find a 30-year mortgage for 12%. This means your monthly payments would be $874.32. But, another lender offers you a 15-year plan for a lower rate, 11.5 %. However, under this plan, your payments would be $992.96, $119 higher than the longer-term financing. In the fifteen-year mortgage, you pay off the loan balance faster than a long-term loan. Because of this, a smaller proportion of each of your monthly payments goes to interest. So, if you can afford the higher payments, this plan will save you interest and help you build equity and own your home fasten Because you are paying less interest, though, you may also have fewer tax deductions.
© Copyright Federal Trade Commission 6th & Pennsylvania Avenue, N.W. Washington, DC 20580 (202) 326-2222 |