► Debt Consolidation - Mortgages

Fixed Rate

A fixed rate mortgage offers an interest rate that will never change over the entire life of the loan. If you lock in a rate of 7 percent that calculates a payment of $1,247 per month, then you know that in 20 years you'll still be paying $1,247 per month. The only things that will change will be the property tax and any insurance payments that are included in your monthly payment.

The length (known as the term) of your fixed rate mortgage can be 15, 20 or 30 years. These terms have an affect on the various benefits you'll get from your mortgage.

� 30-year fixed-rate
The 30-year term gives you the maximum tax advantage by having the greatest interest deduction. While the fact that you're paying more interest may not seem like a benefit, you make lower payments with the longer term fixed-rate loan and you get a bigger tax deduction. If you will be staying in your home for many years (especially if you think your income may not increase tremendously), this may be the best option. This type of loan is also the easiest to qualify for.

� 20-year fixed-rate
You can shorten your mortgage by 10 years and usually get a lower interest rate with the 20-year mortgage. These aren't offered through as many banks and lenders, however, so you may have to shop around to get one. The advantage with the shorter term, besides paying your loan off sooner, is that you'll also have more equity in your home sooner than you will with a 30-year loan. Your payments will be higher, however.

� 15-year fixed-rate
This loan term has the same benefits as the 20-year term (i.e., quicker pay-off, higher equity, lower interest rate), but you will also have a higher monthly payment. . If you lock in a rate of 7 percent that calculates a payment of $1,247 per month, then you know that in 20 years you'll still be paying $1,247 per month. The only things that will change will be the property tax and any insurance payments that are included in your monthly payment.