Mortgage Question

[DVK916]

What is the advantages of one over the other. I know someone looking to buy a house and they are asking me to help they gather information.

 

[QED]

Fixed-rate just means the interest rate is fixed over the duration of the loan. This means stability and predicable paymensts for you. However, the downside is that in exchange for this security you will usually pay a higher rate than a variable-rate loan.

Interest-only means for some portion of the loan-period (sometimes the first year, but usually the first 3 years, 5 years, or 10 ten years) you only have to pay the montly interest on the loan-- no principal. This means lower monthly payments. However, if you only make interest payments your balance will not go down. Also, a lot of banks charge a slighly higher interest rate for an interest-free loan than a standard loan. In some cases, the payment savings is minimal. Interest-only loans can be fixed rate, or variable-rate.

 

[HomeAppraiser]

Try Bankrate.com answers to all sorts of mortgage questions.

 

[DVK916]

Originally posted by: MathMan
Fixed-rate just means the interest rate is fixed over the duration of the loan. This means stability and predicable paymensts for you. However, the downside is that in exchange for this security you will usually pay a higher rate than a variable-rate loan.

Interest-only means for some portion of the loan-period (sometimes the first year, but usually the first 3 years, 5 years, or 10 ten years) you only have to pay the montly interest on the loan-- no principal. This means lower monthly payments. However, if you only make interest payments your balance will not go down. Also, a lot of banks charge a slighly higher interest rate for an interest-free loan than a standard loan. In some cases, the payment savings is minimal. Interest-only loans can be fixed rate, or variable-rate.

But doing the math, if the interest rate is the same you pay a lot more with interest only loan, in the end.

FYI a Fixed rate loan refers to the payment them self being fixed.