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Get FRM amortization schedule
What are the features of fixed rate mortgages?
- Loan term: The loan term usually varies from 15 to 30 years.
- 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.
- 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?
- First time buyers, as it offers more security against rising rates and payments.
- Those who plan on staying in their home for a long time.
- Borrowers who'd like to know what their monthly expenses are going to be.
- Those who can afford to pay the higher interest rate.
How do you get the best fixed rate mortgage?
What are the types of FRMs?
- 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.
- Protection from inflation: Because your interest rate doesn't change, your payments aren't affected by inflation. So there's less risk of defaulting.
- Fulfill long term plans: These loans help you plan for long term financial goals because your payments will never change.
- 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.
- 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.
What are the pros and cons of FRMs?
However, there are certain cons associated with fixed rate loans. They are:
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.