If you'd like to go for a mortgage wherein rates and payments don't change over the loan term thereby helping you to carry on a fix budget, then you should take out a fixed rate mortgage (FRM). Take a look at the following topics before you choose an FRM:
What are the features of fixed rate mortgages?The features of fixed rate mortgages are given below: - Loan term: The loan term usually varies from 15 to 30 years.
- Rates: The rates are usually higher than the initial low rates of ARMs. As such monthly payments are higher than the initial low payment of ARMs. The interest rates on fixed rate loans are based on yields of 10 year Treasury bond.
- Monthly Payment: The monthly payments remain almost similar throughout the loan term. At times, payments may vary slightly due to change in the property taxes and homeowners insurance premiums.
The interest payments towards the beginning of the loan term are larger than that towards the end. The monthly payment towards the principal remains low during the initial period and increases towards the end of the loan term.
Who should opt for a fixed rate mortgage?The fixed rate mortgages are suitable for: - First time buyers, as it offers more security against rising rates and payments.
- Those who wish to keep the home for a longer time.
- Borrowers who'd like to know what their monthly budget for expenses are going to be.
- Those who can afford to pay at higher rates of interest compared to low initial rates of ARMs.
How do you get the best fixed rate mortgage?In order to get the best fixed rate mortgage or cheapest fixed rate mortgages, you should request for mortgage quotes from different lenders. This will help you to compare offers (including APR, mortgage rate, closing costs, lender fees etc) put forward by lenders so that you can pick and choose the best. It's better that you ask the lender to breakdown the fees that you'll have to pay. And you may also request him to waive a fee or two if your financial situation is good enough. What are the types of FRMs?The different types of fixed rate mortgages are given below: - 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. To get an idea of 30 year fixed mortgage rates, check out the Rates section.
- 15 year FRM:
This type of loan is paid off in 15 years with monthly payments higher than that of long term loans like 30 year mortgages. The total interest payment is lower as the amortization period is shorter.
- 40 Year loan:
This is 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 ...
- 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:
This is a short term fixed rate home loan that requires 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...
- Interest-only FRM:
In this kind of loan, the payment during the interest-only period is usually lower as you pay towards the interest. You may even make a few extra payments towards the principal. However, after the interest-only period, you'll have to make payments including the interest and principal amount. Check out more on how interest-only mortgages work.
What are the pros and cons of FRMs?Check out the pros of taking out an FRM as given below:
- Protection from inflation: Fixed rate mortgages offer protection from inflation. That is, even if rates increase, your payments aren't affected. So, there's less risk as far as payment default is concerned.
- Fulfill long term plans: These loans help you to plan for long term financial goals as you're aware of how much to spend on your loan payments for the entire term.
- No prepayment penalty: You may not have to pay prepayment penalty in case you pay off the mortgage earlier than the loan term. Use the Mortgage Payoff Calculator to find out how much you'll save by extra payments.
However, there are certain cons associated with fixed rate loans. These are:
- Reduced loan amount: You'll get higher rates compared to low initial rates of an ARM. The higher rate often reduces the amount of loan that a homeowner may qualify for. This limits the price of the home that he can afford.
- What if rates fall: Since the interest rate on the loan is fixed, therefore once rates drop down, you can't avail it unless you refinance. And refinancing can cost you in terms of a good amount of closing costs.
If you're the one who has steady source of income and intends to occupy the home for an extended period of time, then fixed rate mortgage is worth considering. However, check out the pros and cons prior to choosing the best fixed rate mortgage or the cheapest fixed rate mortgage.
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benng
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0.10 Dollars($)
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Post subject: Bi weekly |
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| Can i have some knowledge on convertible mortgage?? |
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Jessica
Community Mentor
Joined: 08 Jun 2004
Posts: 818
Location: OHIO
205.31 Dollars($)
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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 $200 and a fee equal to 1/4th of a point (1point = 1% of the loan amount). As a borrower, you may be offered a rate equal to 2% below the initial rate while you convert to low rate mortgages during a certain time limit. This option allows you to adjust the interest rates on your loan without going for refinancing which can cost up to 5% to 6% of the loan amount.
Some homeowners will find the ROL to be much cheaper against the high closing costs of refinancing. But there are homeowners who prefer refinancing to ROL because the former gives the opportunity to draw on the built-up equity that is not available with the ROLs.
Convertible adjustable rate mortgage is also quite popular in today's market. It works like any other ARM product but can be converted into a 15 year or 30 year fixed rate mortgage after a certain period of time, that is generally between second and fifth years of the loan. With convertible ARMs in demand, homeowners can make use of inital low rate of an ARM and then benefit from the rate of a fixed rate mortgage, provided the rate on the latter is quite low.
Hope you will be benefited from this information.
Regards,
Jessica. |
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kelvin
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Post subject: |
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| really confused between 30 year and 15 year fixed mortgages. can i get some useful advice here? |
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Caron
Moderator
Joined: 19 Jul 2005
Posts: 1562
Location: florida
266.68 Dollars($)
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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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mark
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Post subject: 40 year fix |
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| how do one qualify for a 40-yr fix mortgage............... |
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jameshogg
Joined: 20 Dec 2005
Posts: 4795
Location: nevada
590.75 Dollars($)
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Post subject: RE: qualify for 40 year frm |
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Hi Mark,
Welcome to forums.
To qualify for a 40 year fixed rate mortgage loan, you'll have to have to a good credit score, somewhere between 670-680 at least and a debt-to-income ratio not exceeding 28/36 for loans other than those insured by the FHA.
However, I'd like to ask you as to whether you're anticipating paying for your loan for 40 years at a stretch. If you are looking for a fixed rate long term loan, the 25 year may well serve your purpose. But yes, it's true that with 40 year loan, monthly payments will be comparatively lower than with a 25 year loan.
Thanks |
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Carrie
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Post subject: 2nd mortgage |
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| I was wondering if there is a loan out there where me and my fiance can just combine all of our dept including our first mortage into one payment. |
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brian1
Community Experts
Joined: 14 Jun 2008
Posts: 361
Location: Northern California
0.65 Dollars($)
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Post subject: |
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Hu Carrie
Do you have enough equity in your home to cover the amount of money you hope to borrow.
FHA will allow you to borrow up to 95% of the homes value.
Tell us more we may be able to better answer your question.
Brian
_________________
Licensed Broker 50 states
http://www.aimwithfocus.com
Need quick advise email or PM Glad to help |
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katrina
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Post subject: FRM compared to APR |
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| I am confused about the difference between the fixed rate (i.e 5%) and the the difference in the APR (set at 6%). Why does the APR differ from the fixed rate and what does it mean? |
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Niicss
Joined: 03 Oct 2005
Posts: 2986
Location: New Jersey
469.48 Dollars($)
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Post subject: |
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Hi katrina,
A fixed rate mortgage or FRM is a loan where the rate of interest for paying the mortgage rate remains the same throughout the loan term. On the other hand, APR (annual percentage rate) is not the actual rate given by the lender. It is the effective rate representing the cost of borrowing a mortgage loan.
Thanks.
_________________
Good is the Enemy of Great. |
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