Fixed rate mortgage or FRM is a home loan wherein the rate of interest is fixed and does not change throughout the duration of the loan. This is the most common type of mortgage because it allows the borrower to keep a constant and steady rate of interest for the duration of their loan.

Characteristics of a fixed rate mortgage

This type of mortgage gives more security to the borrowers and is widely used by first time home buyers.

• It is best suited for those people who want to know what their monthly budget would be for the expenses they incur for that particular month.
• It is simple and easy to understand in comparison to the Adjustable rate mortgage (ARMs)
• The rates charged by fixed rate mortgages are usually higher than ARMs. Here the loan term usually varies from 15 to 30 years.
• The initial monthly payments are usually higher in fixed rate mortgages. They remain almost similar throughout the loan term. The payments may slightly vary if there is change in the property taxes and homeowner’s insurance premiums.

Types of Fixed Rate of Mortgages

There are several types of fixed rate mortgages such as:

30 year FRM: The duration period for these types of mortgages is 30 years and has fixed rates of interest. The monthly payments are lower than that of 15 year mortgages because the interest is amortized for a longer duration.

15 year FRM: This type of FRM is paid at the time duration of 15 years with monthly payments higher than that of 30 year mortgages. The total interest payment is lower as the period of amortization is shorter.

Bi-weekly mortgage: These type mortgages require payments to be made twice a month. The payment should be made every two weeks instead of standard monthly payments. One half of the monthly payment is equal to the bi-weekly payment.

Interest-only FRM: In this type of mortgage loan only the interest portion of the payment is paid on a monthly schedule for an amortization period.

What kind of FRM you should go for-

To find the best fixed rate mortgage, all you need to do is to shop around and do your homework. You can ask for quotes from several lenders. Consult your friends and business associates if they can recommend an honest lender. If possible you can ask your lender to waive a fee or two. This can only happen if you are a potential borrower or if you make large purchases.

When most people think of going for a fixed rate mortgages, they go for a 30 year fixed mortgage. Here the interest rate does not change at all for 30 years. You can also go for 20 years, 15 years, or 10 years of fixed rate mortgage. When the rate of interest gets reduced, you can save significant amounts on your monthly payment by refinancing.

Advantages of fixed rate mortgages:

• The monthly payments are fixed over the duration of the mortgage.
• The rates of interest do not change during the life of the loan.
• It is protected if the rates go up.
• You can refinance the amount if the rates go down.

The best benefit you can avail from a fixed rate mortgage is that you will precisely know in advance that what your mortgage interest and principal payments are going to be and hence you can plan your budget accordingly.

Disadvantages:

• Usually has a higher rate of interests compared to initial rate of ARM
• The mortgage payments are higher
• Even if the interest rates improve the rates do not drop because the lenders do not know what will happen with the interest rates over the next 15 to 30 years.

In spite of its benefits and drawbacks, it is one of the most preferred types of home mortgage as it has fixed rate of interest throughout the loan period. And, you can easily repay your debts through lower monthly payments compared to ARM.

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