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Fixed rate mortgage: A safe mortgage choice for you

If you'd like to go for a mortgage where the interest rates and payments don't change over the loan term then you should take out a fixed rate mortgage (FRM). A fixed rate loan also helps you maintain a steady budget. Take a look at these topics before you choose a FRM:
Do it yourself!
Get FRM amortization schedule


What are the features of fixed rate mortgages?

The features of a fixed rate mortgage are:
  1. Loan term: The loan term usually varies from 15 to 30 years.
  2. Rates: The interest rates are usually higher than the initial low interest rate on an ARM, which means your initial payments will be higher. Interest rates on fixed rate loans are based on the yield from a 10 year Treasury Bond.
  3. Monthly Payments: The monthly payments on a fixed rate only vary according to changes in property taxes and homeowners insurance premiums.
    As the loan principal is repaid, the amount you will be paying toward interest will decrease. However, the interest rate that is being used to calculate the interest payments will remain the same.


Who should opt for a fixed rate mortgage?

The fixed rate mortgages are suitable for:
  1. First time buyers, as it offers more security against rising rates and payments.
  2. Those who plan on staying in their home for a long time.
  3. Borrowers who'd like to know what their monthly expenses are going to be.
  4. Those who can afford to pay the higher interest rate.


How do you get the best fixed rate mortgage?

In order to get the best or cheapest fixed rate mortgage, you should request mortgage quotes from different lenders. This will help you compare offers including APR, interest rates, closing costs, lender fees, etc so you can choose the best mortgage. If your financial situation is good enough, you may request to have some of these fees waived.


What are the types of FRMs?

The different types of fixed rate mortgages are:
  • 15 year FRM:
    This type of loan is paid off in 15 years. The monthly payments higher than a 30 year fixed because you have a shorter time period to repay the loan. The total interest payment is lower as the amortization period is shorter.
  • 30 year FRM:
    These are payable over 30 years. The monthly payments are lower than 15 year mortgages because the interest is amortized for a longer period of time. To get an idea of 30 year fixed mortgage rates, check out the Rates section.
  • 40 Year loan:
    This is a fixed rate loan paid off over 40 years. The monthly payments are lower in comparasion to a 15 or 30 year loan, but you'll pay more in interest. Learn More ...
  • Bi-weekly mortgage:
    With this type of home loan, you make payments twice a month (every 2 weeks) instead of making payments at the end of every month. Each bi-weekly payment is 1/2 of the standard monthly mortgage payment. Know More ...
  • Convertible mortgage:
    Convertible loans are flexible mortgages that allow a homeowner to take out a loan that can be easily converted. Learn More ...
  • Balloon mortgage:
    This is a short term fixed rate home loan with low monthly payments for 5 to 7 years. At the end of this short term, the remaining balance is paid in a lump sum known as the balloon payment. There is also the option to convert this mortgage into a long term fixed rate loan if the borrower fails to make the balloon payment. Learn More...
  • Interest-only FRM:
    With this kind of loan, you start out paying only the interest, which makes your payments lower. You may make a few extra payments towards the principal. However, after the interest-only period ends, you'll have to make payments including interest and principal. Find out more on how interest-only mortgages work.

    What are the pros and cons of FRMs?

    Check out these pros of taking out a FRM:
    1. Protection from inflation: Because your interest rate doesn't change, your payments aren't affected by inflation. So there's less risk of defaulting.
    2. Fulfill long term plans: These loans help you plan for long term financial goals because your payments will never change.
    3. Prepayment penalties: You may not have to make a prepayment penalty if you pay off the mortgage before the loan term ends. 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. They are:

    • Reduced loan amount: You'll pay higher rates when compared to the low initial rates of an ARM. The higher rate often reduces the amount of loan and the home you can afford.
    • What if rates fall: The interest rate on the loan is fixed. If the market interest rates drop, you can't take advantage of the lower rate unless you [url=http://www.mortgagefit.com/refinance.html]refinance[/url]. And refinancing can cost you more closing costs and other fees.

    If you have a steady source of income and intend to occupy the home for an extended period of time, then a 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.

    Related Readings
Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Can i have some knowledge on convertible mortgage??

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:51 | Post subject:

Jessica's picture
Jessica | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:51 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

really confused between 30 year and 15 year fixed mortgages. can i get some useful advice here?

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:51 | Post subject:

Caron's picture
Caron | Joined: July 19, 2005 08:37 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

[b:c9ea8e8c74]30 year loan:[/b:c9ea8e8c74]

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.

[b:c9ea8e8c74]15 year loan:[/b:c9ea8e8c74]

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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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

how do one qualify for a 40-yr fix mortgage...............

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:51 | Post subject:

jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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's picture
brian1 | Joined: June 14, 2008 05:14 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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riseabove's picture
riseabove | Joined: November 9, 2009 12:58 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Niicss,

So the APR incorporates the interest accumulated during the year based on the payments being maintained?

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jonplayer123's picture
jonplayer123 | Joined: April 25, 2011 09:32 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

By studying this article we learn about fixed rate mortgage , its types and its features. This article is helpful in knowing about short term plan and long term plan. Thanks for sharing from us.
[color=Red:b25f5cf51e][URL Deleted as per forum rules. Thanks][/color:b25f5cf51e]

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

What % rate do you ask for with owner providing financing? What type of contact is best?

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome jesrdh,

The owner financing rates will depend upon the market. You can check the market rates and give a similar one to the buyer. However, if you wish, you can even ask for a higher interest rate.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

My husband and I have been renting for over 3 yrs. Our landlord out of the blue told us he is selling our property and will offer it cheaper to us, but we have only one month to get out if we cannot get a loan for the money. My husband has an outstanding medical bill of about 13,000$ when he was hospitalized to the emergency room. Is there any way to get a loan that can pay for our house (valued at 45,000$) and also pay that medical bill? The reason I include the bill is because banks will not finance us with the medical bill, even though we both have decent paying jobs and I have the same job in the past 10 yrs. We have no other debt beside that medical bill!!!!! Please help.

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Andria,

If you and your husband have valid reason for the medical debt and can prove it, then you can even apply for a FHA loan. If you meet all the required criteria of the lender, then you will be able to get the loan.

Thanks

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