Are Long-term Fixed-rate Mortgages A Good Idea?

By Bob Redtree

There are many different types of mortgages. When shopping for a new house or refinancing, what type of loan you choose is one of the most important long term decisions you can make. The only decision more important is which house to buy. With all of the mortgage choices available, your head can spin with indecision. One loan that should definitely be on your short list of mortgage choices is a long-term fixed-rate mortgage.

Long-term Fixed-rate Mortgages Features

Long-term fixed-rate mortgages are the easiest mortgages to understand. You borrow a set amount of money at a fixed interest rate for a fixed number of years. In a long-term mortgage, this is typically 30 years though 40 and 50 year long-term fixed-rate mortgages are available. The monthly payment contains interest and payback of the loan principal so that at the end of the loan term, the amount borrowed is completely paid back to the lender.

Advantages of Long-term Fixed-rate Mortgages

There are two main advantages to a long-term fixed-rate mortgage. The first advantage is that your interest rate is fixed and can never rise. In a low interest rate environment, this allows the borrow to lock in a low interest rate on your mortgage and even if interest rates rise, your interest rate and resulting monthly payment will never rise. The second advantage is security. One of the main downsides of adjustable-rate mortgages is the insecurity of the interest rate and the possibility that your monthly payment may fluctuate and increase. With a fixed-rate mortgage your payment will not increase.

Disadvantages of Long-term Fixed-rate Mortgages

The main disadvantage to a long-term fixed-rate mortgage is that the interest rate for the loan is generally higher than an adjustable rate mortgage. The banks need to be compensated for the interest rate risk over the 30 years of the loan so the interest rate must be higher. Another disadvantage of a fixed-rate mortgage occurs when interest rates decline. With an adjustable-rate mortgage, your payment could decline if the interest rate goes down. With a fixed-rate mortgage, the interest rate is fixed and your payment will not decline.