Mortgage Help   Mortgage Rates Real Estate Credit Foreclosure Tax Mortgage Rates Mortgage Basics Chapter 1: How much house can you afford? Homeownership Should You Buy or Rent Summary   Chapter 2: Adjustable-rate mortgages ARM and a fixed-rate mortgage Fixed-rate mortgages Understanding the key elements Which type of lender is right for you? Other types of mortgages Subprime Summary   Chapter 3: Your credit score Down Payment How lenders set rates Low down payments Mortgage insurance Your mortgage payment Mortgage Points Summary   Chapter 4: The good faith estimate Inspection and Insurance Necessary paperwork for a buyer Other lender paperwork Paperwork and fees Prequalification and preapproval Special circumstances Summary   Chapter 5: Ten questions to ask Turned down for a mortgage Underwriting What lenders ask Summary   Chapter 6:  Understanding the closing process Escrow Summary   Chapter 7: When your mortgage is sold Avoiding foreclosure Paying ahead Payment changes Refinancing Removing mortgage insurance Summary Fixed-rate mortgages The most common form of mortgage is the fixed-rate mortgage. This type of mortgage features a fixed interest rate and set monthly payment amount for the life of the mortgage. Fixed-rate mortgages are popular because many borrowers are uneasy with the thought of their mortgage payment rising and falling with interest rates. This instability is risky for many borrowers. When rates are low, fixed-rate mortgages are often the best choice for homebuyers. When looking at fixed-rate mortgages, borrowers have to decide how long do they want to stretch the payments out? The most popular repayment terms are 15-year and 30-year. There are advantages and disadvantages with each repayment term. A 30-year mortgage offers the borrower a chance to borrow money on a long term basis without having to worry about changing interest rates. Monthly payments are lower for a 30-year mortgage, because the interest is amortized over a longer period of time. Lower monthly payments give borrowers extra money to use for investments that yield higher rates of return. The total amount of interest repaid over the life of the loan is greater with a 30-year mortgage. And due to the longer repayment term, the interest rate is usually slightly higher. But the higher interest bill increases the amount of interest that consumers can deduct on their federal income taxes, possibly reducing their income tax liabilities. Because the repayment term is stretched out, the property will build equity at a very slow pace during the first several years of the mortgage. This is because most of the monthly mortgage payment goes towards the interest instead of the principal. With a 15-year mortgage, borrowers build equity much faster due to a shorter amortization schedule. The total interest paid is much lower than with a 30-year mortgage. Because you are borrowing the money for a shorter period of time, you will usually see lower interest rates. The monthly payment on a 15-year mortgage, though stable, is higher than that of a 30-year mortgage. This often restricts homeowners to a less expensive property than they could afford with a 30-year mortgage. For example, if you have a $150,000 mortgage at 6.64% for 30 years, you will pay $961 a month in interest and principal. Over the life of the mortgage, you will pay $196,304 in interest to the lender. With a 15-year mortgage for $150,000 at 6.10% (interest rates are slightly lower for 15-year mortgages), you will face a monthly payment of $1,274 each month. But you will only pay the lender a total of $79,304 over the life of the mortgage. With a 15-year mortgage, you save $117,001 in interest. Your monthly payment will be $313 higher than the 30-year mortgage. You have to consider if investing that money in your home will give you a greater return than investing it in the stock market, for example. If you are looking at only owning the home for a short period of time, you might want to consider an adjustable-rate mortgage for your home purchase.