Understanding the Interest of a 30-Year Fixed Rate Mortgage

When you want to purchase a home, one of the mortgage options you can apply for is a 30-year fixed rate mortgage. Like the name suggests, this mortgage is offered at a fixed interest rate and is payable for about 30 years.

One of the benefits of a fixed rate mortgage is that the interest remains the same. This is beneficial as you will always know how much you are supposed to pay back in terms of monthly installments. Basically, a fixed rate mortgage gives you peace of mind and a better way of organizing your finances. Learn more about mortgage, go here

Principal and Interest Payment
When you make the monthly payments for the mortgage, the money will be allocated towards the interest charged as well as the principal you borrowed. Generally, your first years of payments will be mostly allocated to the interest. This means your principal may not reduce fast during the first few years of repayment. Find out for further details on this homepage here. 

However, with time, things will begin to change. As you continue to pay back the mortgage over the years, the allocation of your payment also changes. This time, more of the money will be allocated towards paying off the principal and less towards the interest. Thus, you will build equity into the house faster as the years go by.

You should understand this concept before borrowing a fixed rate mortgage. This concept is important especially if you anticipate you will want to sell the house or refinance the mortgage after a few years.

What is Amortization?
Amortization is a mortgage terms that refers to the gradual reduction of debt or your loan balance over time as you make the monthly payments.

Fixed Monthly Payments
Over time, the allocation of your monthly payments to the interest as well as principal changes. However, it is important to know that the monthly payments you will be making remain the same. The same also applies to the interest. This is why the loan is referred to as a 'fixed' mortgage. The fixed payment is one of the features that makes the fixed rate mortgage different from an adjustable rate mortgage (ARM).

Like the name suggests, the interest of an adjustable rate mortgage (ARM) can change over time. In most cases, the interest goes up. This therefore means that your monthly payment is also bound to change over the payment period.

The above is an overview of how the interest of a fixed rate mortgage works. Take a look at this link  https://curiosity.com/videos/how-to-crush-your-mortgage-ehow-finance/ for more information.