The Conventional Fixed Rate Mortgage

These mortgages can vary in length, typically 15 to 30 years, of which the 30 year is still the most popular of all the mortgages used to buy a house. Classically these do not have the lowest interest rates, but, because of their duration, they do not have the highest, either.

A consideration of which loan is best for you?  Not basing the decision on the “lower” monthly payment.  For these loans you have to take into account the total coast of the loan.

While a 30-year mortgage will cost less per month, that cheaper monthly payment can mask the fact that in the long run you pay a LOT more for your house. Generally, the 30 year has a higher interest rate which is paid on twice as long compared to a 15-year fixed-rate mortgage.

Some numbers to illustrate the point for comparison.  If you put 5% down and finance the rest of the loan amount with a 30-year fixed-rate mortgage at 3.875% interest, you’ll pay $893 a month in principal and interest, plus PMI, which typically could be around 0.5% (or $79/month). Your total interest paid would come to $131,642 by the time your mortgage is done, and your PMI would automatically drop off after a little over eight-and-a-half years.

A $200,000 mortgage with a 15 year duration?  If you put 20% down on a 15-year fixed-rate mortgage at 3.125% interest, your monthly payment would be $1,115, and you’d pay $40,624 in total interest. This represents a savings of anywhere between $85,000 and $134,000 in interest charges alone.

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