Fixed Rate Loans

With a fixed rate mortgage, the interest rate stays the same during the whole loan period, the common terms are 15 year and 30 year mortgages. Shorter terms are available, as well as longer, as long as 40 and up to 50 year. Advantages of a fixed rate mortgage is that your monthly payments stay the same for the life of the loan.

Your fixed rate payment amount is independent of the additional costs of say payments to escrow ( escrow are the payments for your property taxes and property insurance. ) These payments may change over time with the rise in property tax; this would make your escrow amount rise as well. There by changing your payments; but the payments that reflect your principal and interest will always stay the same with a fixed loan.

The fixed rate mortgage his more expensive than that of the adjustable rate mortgage. Also a longer term fixed rate may have a smaller payment than a shorter term fixed rate mortgage but it is still more expansive than the shorter term. You have a higher rate with the long term than the short but you are paying for a longer time. The short term will have a lower rate but the payments will be more due to the short term.

The fact that a fixed rate mortgage has a higher starting interest rate does not indicate that this is a worse form of borrowing compared to the adjustable rate mortgages. If interest rates rise, the ARM cost will be higher while the FRM will remain the same.

The fixed rate mortgage may also offer the ability to prepay your principal early without penalty. Early prepayments of part of the principal will reduce the total cost of the loan, and will shorten the amount of time needed to pay off the loan. There by costing you less in the overall amount of interest you would have paid had you made payments for the scheduled life of the loan.

A early payoff of the entire loan amount through refinancing is sometimes done when interest rates drop significantly.

Also some mortgages may offer a lower interest rate in exchange for the borrower accepting a prepayment penalty.

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