Fixed Rate Mortgages:
What are the Benefits
by Lisa Phillips
June 2008
What are the Benefits
by Lisa Phillips
June 2008
The fixed rate mortgage is probably the best and most desirable
loan for the new homebuyer as well as a seasoned home owner.
Most loans are designed as fixed rate mortgage (FRM)
Fixed rate mortgages are generally amortized over a specified
number of years in equal monthly payments which include the
principal and interest. FRM terms can be Terms can be 15, 30 and
even 40 years. In recent years mortgage loans drifted away from
fixed rate loans and we are seeing the negative fall-out from other
loans like interest only and ARMs'.
The Benefits:
Fixed Mortgage Payment. There will be no surprises even if
interest rates increase, inflation occurs or there is a recession. Your
interest rate will remain the same. There is greater stability and less
risk involved. The fixed rate mortgage allows the borrower to know
upfront what all future payments will be.
Easy to Budget. The stability in a fixed rate mortgage allows the
borrower to manage their money with more consistency. It will be
easier to budget and make financial decisions.
Various Terms. There are several types of fixed rate mortgages:
Pay-Off your Mortgage Sooner. With a fixed rate mortgage, the
borrower can choose to make larger monthly payments and have
that extra money designated directly to the principal balance. By
paying just one extra payment a year and having that payment go
directly to the principal only, the borrower can reduce their 30-year
fixed rate term by 6 to 8 years.
The Disadvantages:
Refinancing. When and if mortgage rates decrease, borrowers
would have to refinance their fixed rate loans in order to take
advantage of falling rates. Whenever you refinance you will have
various fees involved.
High Monthly Payment. Because lenders do not know what the
interest rates will be in the future, they may charge you more in the
form of higher interest rates, fees and costs of loan origination for
having the stability and luxury of a fixed rate mortgage.
Taxes and Insurance. If your loan is higher than 80% of the home
purchase price you will more than likely be required to pay monthly
property taxes and homeowner’s insurance. Your lender will tack on
the costs for the taxes and insurance to your monthly payment and
place the extra money into an impound or escrow account. When
your taxes and insurance are due the lender will be responsible for
paying them.
Pre-Payment Penalty. This clause allows a lender to collect extra
money if the borrower pays off the loan early. Typically the pre-
payment penalty can range from 1 to 5 years and is calculated as a
percentage of the outstanding balance at the time of pre-payment or
a specified number of months of unearned on the loan.
loan for the new homebuyer as well as a seasoned home owner.
Most loans are designed as fixed rate mortgage (FRM)
Fixed rate mortgages are generally amortized over a specified
number of years in equal monthly payments which include the
principal and interest. FRM terms can be Terms can be 15, 30 and
even 40 years. In recent years mortgage loans drifted away from
fixed rate loans and we are seeing the negative fall-out from other
loans like interest only and ARMs'.
The Benefits:
Fixed Mortgage Payment. There will be no surprises even if
interest rates increase, inflation occurs or there is a recession. Your
interest rate will remain the same. There is greater stability and less
risk involved. The fixed rate mortgage allows the borrower to know
upfront what all future payments will be.
Easy to Budget. The stability in a fixed rate mortgage allows the
borrower to manage their money with more consistency. It will be
easier to budget and make financial decisions.
Various Terms. There are several types of fixed rate mortgages:
- 40-year fixed rate mortgage
- 30-year fixed rate mortgage (the most common)
- 20-year fixed rate mortgage
- 15 year fixed rate mortgage
- 10-year fixed rate mortgage
Pay-Off your Mortgage Sooner. With a fixed rate mortgage, the
borrower can choose to make larger monthly payments and have
that extra money designated directly to the principal balance. By
paying just one extra payment a year and having that payment go
directly to the principal only, the borrower can reduce their 30-year
fixed rate term by 6 to 8 years.
The Disadvantages:
Refinancing. When and if mortgage rates decrease, borrowers
would have to refinance their fixed rate loans in order to take
advantage of falling rates. Whenever you refinance you will have
various fees involved.
High Monthly Payment. Because lenders do not know what the
interest rates will be in the future, they may charge you more in the
form of higher interest rates, fees and costs of loan origination for
having the stability and luxury of a fixed rate mortgage.
Taxes and Insurance. If your loan is higher than 80% of the home
purchase price you will more than likely be required to pay monthly
property taxes and homeowner’s insurance. Your lender will tack on
the costs for the taxes and insurance to your monthly payment and
place the extra money into an impound or escrow account. When
your taxes and insurance are due the lender will be responsible for
paying them.
Pre-Payment Penalty. This clause allows a lender to collect extra
money if the borrower pays off the loan early. Typically the pre-
payment penalty can range from 1 to 5 years and is calculated as a
percentage of the outstanding balance at the time of pre-payment or
a specified number of months of unearned on the loan.
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Related Topics:
- Nationwide Downpayment Assistance Programs
- VA Homes Loans
- Hard Money Mortgage Loans
- Adjustable Rate Mortgage Loans
- Negative Amortization Mortgage Loans
- Interest only Mortgage Loans
- Balloon Payment Mortgage Loans
- Benefits of making Bi-Weekly Mortgage Payments
- Options to Foreclosure
- Stop Foreclosure with Forbearance
- How to Request a Mortgage Loan Modification
- Downpayment Assistance Listed by State
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