A mortgage loan with an interest rate that does not change over the term of the loan. The distinguishing factor of a fixed-rate mortgage is that the interest rate over every time period of the mortgage is known at the time the mortgage is originated. The benefit of a fixed-rate mortgage is that the homeowner will not have to contend with varying loan payment amounts that fluctuate with interest rate movements.
The term fixed rate mortgage refers to the payment amount that is made each month on the principal and interest and is paid to a lender. It is a type of loan that was created by the Federal Housing Administration to provide borrowers with a steady payment over the course of the loan.
Fixed rate mortgages, or FRMs, are the mortgage of choice for most first-time homebuyers. The main reason for their popularity is that they have the lowest risk of the various types of mortgages. Your payment of principal and interest will not change over the years. However, if you escrow for taxes and insurance, you might find that your payments adjust to cover those cost changes and that could result in some increase in monthly payments.
This type of mortgage usually is found in mortgages of 15 or 30 year terms. More recently, you can find longer terms that extend, in some cases, up to 40-year mortgage terms. Some have shorter mortgage terms as well.
In choosing a fixed rate mortgage, it’s important that you check for prepayment penalties. Some lenders have these and in fixed rates they are more common.
While fixed-rate mortgages are more common, especially since the mortgage crisis, they are more expensive than adjustable rate mortgages. The main reason for that is the fact that the lender needs to make sure they are protected from huge interest rate swings in the market. For that reason the interest rates tend to be higher.
Although it really depends on the length of time you plan to be in the home you are buying, a fixed rate mortgage usually is the best choice to hedge against interest rate fluctuations in the long run.
For more information on applying for a fixed rate mortgage, contact Meridian Mortgage at 317-968-9500 or contact us online.
Meridian Mortgage Solutions is a subsidiary of Endeavor Capital, LLC Licensed through the Indiana Department of Finance and Insurance. License #17519 & 17520, NMLS#222524
Endeavor Capital, LLC and its DBA's are not acting on behalf of or at the direction of HUD/FA or the Federal government.
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