Example Diagrams: $100,000 loan with a 30 year term @ 7%, resulting in a monthly payment of $665.30.
Figure 1 shows the monthly payment over the 30 year term. In the early period of the loan most of each payment goes towards interest, but as the loan balance decreases an increasingly large percentage of each payment goes to principal. Figure 2 shows the loan balance decreasing over time.
A fixed rate mortgage is a reliable, transparent loan that is easy to understand and offers few surprises for the investor. This option is especially suitable for long-term buy-and-hold investors, particularly when rates are low compared to historic levels. However, it might not give the flexibility and premium reduction offered by other instruments. The Author: Chris Smith is a real estate investor, founder of an online reference for investors and real estate professionals and has published articles in Corporate Finance Magazine, Euromoney, and the Business Journal Network. More about Chris Smith.