Pros and Cons of Fixed Rate Mortgages

Long Term Mortgages:
Pros.  Predictability is the big plus. You know exactly how much interest you will pay over the term of the loan. Total monthly payment of principal and interest is fixed, and in early years it consists primarily of tax-deductible interest.

Cons.  Stability comes at a price. Interest rates on fixed-rate loans are usually higher than starting rates on adjustable-rate loans. If you choose a low-down-payment loan, you may have to pay for mortgage insurance — an added monthly expense that protects the lender from risk of loss.

15-year, fixed-rate, fixed-payment mortgage:
Pros.  Principal balance is reduced relatively rapidly compared to longer-term loans. The 15-year fixed-rate loan permits you to own your home debt-free in half the time, and for less than half the total interest cost, of a 30-year fixed-rate loan. It offers some individuals a useful financial planning tool. Interest rates may be lower than those offered on 30-year fixed-rate loans.

Cons.  Higher monthly payments make these loans more difficult to qualify for than longer-term mortgages. A 15-year mortgage reduces the number of homes you can afford to buy and locks you into making monthly payments roughly 15% to 30% higher than you’d make with a comparable 30-year loan.

Biweekly fixed-rate mortgage:
Pros.  Higher monthly payments make these loans more difficult to qualify for than longer-term mortgages. A 15-year mortgage reduces the number of homes you can afford to buy and locks you into making monthly payments roughly 15% to 30% higher than you’d make with a comparable 30-year loan.

Cons.  Private companies and lenders usually charge for this service. Registration fees and biweekly debit charges can make this a costly way to shorten the life of a loan and lower interest expense. The same objectives can be accomplished more flexibly with a 30-year mortgage by making an extra payment or two each year or by applying an additional sum to principal repayment when you make a monthly payment. As with other kinds of rapid-payoff mortgages, you trade total interest-cost reductions for reduced tax-shelter benefits.