Fixed Rate Mortgage
A fixed rate mortgage (FRM) is a fully amortizing mortgage loan which is when the interest rate remains the same over the entire term of the loan. This differs from adjustable rate mortgages (ARMs), as ARM interest rates are fixed for a specified number of years and adjust during the life of the loan thereafter. Because a fixed rate loan has a fixed interest rate for the entire life of the loan, the monthly mortgage payments do not change.
A fixed mortgage can have terms of 30, 20, 15 or 10 years. A 30-year fixed rate mortgage is the most common mortgage program in the United States, as it offers predictability and stability for a housing budget.
How does a fixed rate mortgage work?
The term is the number of years you repay the loan. For example, a 30-year fixed interest rate loan is paid back over the course of 30 years. When you pay a loan back over a longer period, you pay more interest over the life of the loan. While a 30-year fixed rate loan is more attractive because of the steady rate, you pay more interest at a higher rate than you would for an adjustable rate mortgage.
Choosing the right loan term for your fixed interest rate loan depends on your financial situation. A shorter term such as a 15-year fixed rate mortgage usually has a lower interest rate, which allows you to pay less interest over the life of the loan, compared to a 30-year fixed rate mortgage. One drawback of a 15-year fixed interest rate loan, compared to those with longer terms, is that the monthly payments are higher because the loan principal is paid back over fewer years.
Still have questions about a fixed rate mortgage?
At GuardHill, we evaluate your current financial situation and advise you on which loan program best meets your financial needs. We will advise you on whether a fixed rate mortgage or adjustable rate mortgage is best for you! Contact us today!