A Fixed Rate Mortgage Doesn’t Always Mean Fixed Payments

With mortgage rates still near historical low levels, it’s one of the best times to get a fixed-rate mortgage. A fixed rate simply means that the mortgage lender charges you a fixed rate of interest that doesn’t ever change over the life of the loan. However, your monthly payment can still change!

If you get a fixed rate of 4.00 percent, you will be paying four percent in interest until you sell or refinance the home. The longer you make payments on a fixed rate loan, the more interest you pay down. The bulk of your interest payments is front-loaded into the beginning years of your loan schedule. This is best illustrated in an amortization table (see below). So the longer you own your home and pay on your mortgage, the greater percentage of your monthly payment goes to reduce principal. When you reduce principal, you build equity! san diego amortization table

Even with a fixed rate mortgage, your monthly payment can change in other ways. You may decide to roll the costs of your mortgage into your loan, in which case you’ll be paying the APR rate because the loan amount is higher, yet is still being compressed into the same loan term (in years).

Another way your monthly payment can change is by having private mortgage insurance (PMI). If you put less than 20 percent of your home’s purchase price as a down payment, lenders will require that you pay for PMI. Rates on PMI vary, but you can expect your payments to rise slightly over time.

Finally, if your mortgage payment includes homeowners insurance and property taxes, this can also change. You should receive a statement from your insurer when it’s time to renew your insurance, and your lender will divide the annual amount into monthly payments.

Your tax assessor’s office will send you a new statement annually. Your initial tax basis will be based on the purchase price of the home. After that, the assessor’s office will make adjustments to your home’s value as they feel is accurate. Of course, a change in value means a change in your property tax amount.

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4 Responses to “A Fixed Rate Mortgage Doesn’t Always Mean Fixed Payments”

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