A Fixed-Rate Mortgage (FRM) is a mortgage loan that maintains the same interest rate for the life of the loan. This type of mortgage loan is often preferred by homebuyers because of the security of receiving stable monthly payments that are not contingent upon fluctuations in the housing market. Many homeowners seek to replace their adjustable-rate mortgage with a fixed-rate mortgage during refinancing to take advantage of the stability of a fixed home mortgage rate.
Loan Term Length
FRMs typically have a loan period of 15- or 30-years; however, you may be able to qualify for a 10-, 20-, 25- or 40-year amortization schedule. With a traditional 30-year fixed mortgage, you receive lower monthly payments than with the shorter-term 15-year FRM loan. Some homeowners opt for a 15-year amortization schedule to take advantage of paying their loan twice as fast while saving more than half the cost in interest.
Benefits and Drawbacks of FRM Loans
While FRMs provide ultimate security and steady monthly payments, a homebuyer must qualify for a FRM. This is because a FRM loan possesses a higher starting interest rate than adjustable-rate mortgages (ARMs). In addition, if market interest rates decrease significantly, you may lose money by having to pay more than the current mortgage rates dictate.
However, a FRM gives you the flexibility to budget for your financial future; since a fixed home mortgage rate maintains the same monthly payment over the entire life of your loan, you never have to worry about major fluctuations that warrant revision of your month-to-month budget. Due to the dependability of a fixed home mortgage rate, you will not have to deal with the unfortunate occurrence of no longer being able to afford your mortgage as a result of market inflation.
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