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 Sam
Site Admin
Joined: 21 May 2005
Posts: 198
Location: CALIFORNIA
92.34 Dollars($)
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 Posted: Tue Mar 09, 2004 3:51 am Post subject: Fixed Rate Mortgage |
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Fixed Rate Mortgage (FRM) is the most common type of mortgage in which the interest rate remains fixed throughout the entire loan term.
For example, Andrew took a mortgage of $100,000 for 15 years at 4% interest rate from Carole. The interest rate which is 4% will not change throughout the term of the loan. This type of mortgage is known as 'fixed rate mortgage'.
Features:
- The loan term usually varies from 15 to 30 years.
- The monthly payment towards the principal and the interest remain same throughout the loan period but there may be a change in the property taxes and homeowner's insurance paid by the borrower.
- During the initial period of the loan, the borrower pays a large interest than that paid towards the end of the loan term. The monthly payment towards the principal, remains low during the initial period and increases towards the end of the loan term.
There are six different kinds of fixed rate mortgages. They are :
- 40 Year mortgage:
A fixed rate home loan that is to be paid off within a period of 40 years. The monthly payments are lower in comparison to 15 year or 30 year home loans.
Know More ...
- 30 year FRM:
These are payable in 30 years at fixed rates of interest. The monthly payments are lower than that of 15 year mortgages because the interest is amortized for a comparatively longer time frame.
- 15 year FRM:
These long term home loans are paid off in 15 years with monthly payments higher than that for long term loans like 30 year mortgages. The total interest payment is lower as the amortization period is shorter.
- Bi-weekly mortgage:
Home loans of this type require payments twice a month, that is, after every two weeks instead of standard monthly payments. Each bi-weekly payment is equal to one-half of the monthly payment.
Know More ...
- Convertible mortgage:
Convertible fixed rate mortgages provide homeowners with a loan which can be converted to a low interest rate.
Know More ...
- Balloon mortgage:
Balloon mortgage refers to a short term fixed rate home loan requiring low monthly payments for a period of 5 to 7 years. At the end of the short term, the remaining balance is paid in a lump sum amount known as the Balloon payment. There is also the option to convert into a long term fixed rate loan in case the borrower fails to make the balloon payment.
Know More...
A fixed rate mortgage ensures fixed monthly payments but a longer loan term demands greater amount of interest compared to a shorter loan term in a fixed rate mortgage.
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benng
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0.10 Dollars($)
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| Posted: Mon Oct 31, 2005 3:22 am Post subject: Bi weekly |
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| Can i have some knowledge on convertible mortgage?? |
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Jessica
Mortgage Mentor
Joined: 08 Jun 2004
Posts: 613
Location: OHIO
97.63 Dollars($)
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| Posted: Mon Oct 31, 2005 4:17 am Post subject: RE: |
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Hi Benng,
Convertible mortgages can be fixed rate as well as adjustable rate mortgage (ARM). Convertible fixed rate mortgages or the Reduction Option Loan (ROL) allows homeowners to avail a home loan that can be converted to a low interest loan. In such a case, you may have to pay $100 to $200 and a fee equal to 1/4th of a point (1point = 1% of the loan amount). As a borrower, you may be offered a rate equal to 2% below the initial rate while you convert to low rate mortgages during a certain time limit. This option allows you to adjust the interest rates on your loan without going for refinancing which can cost up to 5% to 6% of the loan amount.
Some homeowners will find the ROL to be much cheaper against the high closing costs of refinancing. But there are homeowners who prefer refinancing to ROL because the former gives the opportunity to draw on the built-up equity that is not available with the ROLs.
Convertible adjustable rate mortgage is also quite popular in today's market. It works like any other ARM product but can be converted into a 15 year or 30 year fixed rate mortgage after a certain period of time, that is generally between second and fifth years of the loan. With convertible ARMs in demand, homeowners can make use of inital low rate of an ARM and then benefit from the rate of a fixed rate mortgage, provided the rate on the latter is quite low.
Hope you will be benefited from this information.
Regards,
Jessica. |
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kelvin
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0.10 Dollars($)
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| Posted: Sat Feb 04, 2006 12:31 am Post subject: |
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| really confused between 30 year and 15 year fixed mortgages. can i get some useful advice here? |
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Caron
Moderator
Joined: 19 Jul 2005
Posts: 1322
Location: florida
218.39 Dollars($)
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| Posted: Sat Feb 04, 2006 1:06 am Post subject: RE: |
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Hi kelvin,
The basic information on 30 year and 15 year fixed rate mortgages are provided in the section given above. Let me explain some of the pros and cons of taking either of these loans.
30 year loan:
Pros: Lower monthly payments allow borrowers to utilize the extra cash into investments that offer higher yield than their home values. With higher interest payments, customers will be able to deduct more at tax time. Their federal income tax liabilities thus get reduced.
Cons: Borrowers cannot build up equity faster because the payments in the initial years are meant to cover up the interest rather than the principal loan amount. The total interest is higher because of longer amortization period.
15 year loan:
Pros: The interest rates are lower than 30 year mortgages.
Cons: The monthly payments are higher as the loan term is comparatively shorter than that of other long-term mortgages. Homebuyers are thus prevented from buying less expensive houses than they can afford with long term loans.
Thanks,
Caron. |
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