By Daren Newman - Broadway Capital Group

Fixed-rate mortgages allow for repayment of a debt in equal monthly mortgage payments over a specified period of time, from 10 to 50 years.

A 30-year amortization period is most common.

• Payments are credited first to interest, then to principal.
• During the early years of the loan, most of the monthly payment goes toward interest.
• Toward the end of the loan period, most of the monthly payment goes toward principal.

Fixed-Rate Mortgage Benefits

Borrowers gravitate toward fixed-rate mortgages in-lieu-of adjustable-rate mortgages because they like the security of knowing exactly how much they will pay per month for principal and interest.

• The interest rate is fixed, so if overall interest rates increase, it does not affect the fixed-rate borrower.
• Likewise, if overall interest rates decrease, the borrower's payment still remains the same unless the borrower chooses to refinance the mortgage into a lower rate.
• A borrower can choose to make a larger monthly payment and direct the additional portion of the payment to be paid toward principal, thereby decreasing the principal balance of the loan faster. Collection for Taxes and Insurance

If you are considering a loan that is higher than 80% of the purchase price of your new home, you will likely be asked to pay monthly property taxes and homeowners insurance to your lender. Your lender, in turn, will pay the tax assessor and your insurance company. In this case, your monthly PITI (principle, interest, taxes, insurance) will change from year to year as annual taxes and insurance go up or down.

• Lenders will also collect a reserve, from 2 to 8 months of taxes and insurance, in advance from you.
• This impound account reserve (sometimes referred to as an escrow account) will increase your closing costs.
• The reserve amount collected depends on the time of year and when your annual tax bill is due.

Even if you are putting down 20% or more of the purchase price, often lenders will charge "1/4 point to rate," meaning you will pay .25% more in interest NOT to set up an impound account. Personally, I prefer to be responsible for paying my own taxes and insurance.