How do fixed mortgage rates differ?

A fixed mortgage rate means that you're paying a fixed interest across the entire life of the loan. Fixed mortgage rates are usually offered as 30-, 20- or 15-year mortgages. The greatest differences among these three different types of fixed mortgage rates are the length of loan, the specific interest rate offered and the relative amount paid each month.

On fixed-rate mortgages with the longest loan terms (i.e., a 30-year fixed-rate mortgage), you'll have the lowest monthly payments, but the highest fixed interest rate. You will also be paying the most in interest over the life of the loan, but this may be to your financial advantage since it also means that you'll be able to deduct the most in interest payments from your income taxes. One of the downsides to such a long loan is that you're paying mostly interest for most of the loan, which means you're building equity in your home very slowly. However, if you plan to be in the home for a long time, slow equity may not be a large issue for you.


If are interested in building equity quickly and can take a higher monthly mortgage payment, then you might prefer a 20- or 15- year fixed rate mortgage. Under these loans, the interest rates are likely lower than in a 30-year fixed rate mortgage because you're borrowing the money for a shorter period of time. However, since these loan lengths are shorter, you're paying more principle more quickly. The higher principal payments early on in the loan account for why the overall monthly payments are higher than on a 30-year loan, but also why you're building equity in your home more quickly. Generally, finding a 15-year fixed-rate mortgage is easier than finding a 20-year loan, but both are available.