Fixed rate mortgage loans explained

Description: Get to know what a fixed rate mortgage loan is and the features of this type of a loan. 

As the name suggests, a fixed rate mortgage is a loan on which the interest rate remains unchanged throughout the entire duration of the loan. To be precise, the interest rate of this loan doesn’t vary like an adjustable rate mortgage and the monthly payments also remain the same. Fixed rate home loans are the most common types of mortgages and nearly 75% of home loans are fixed rate mortgages or FRMs. These loans are easier to obtain than ARMs.

The most important benefit of a fixed rate home loan is that you would accurately know what your interest and principal payments are going to be and therefore plan out your budget accordingly.   

Due to the advantage of the fixed interest rate, you have a sense of security in your mind when you know that the rate wouldn’t vary for the whole loan term. Let’s take an example. Suppose you’ve taken out a 30-year fixed rate loan from a lender at 5%. This rate is fixed and wouldn’t vary over time. Whether the market rate goes up to 6% or drops to 4%, you would keep on making your monthly payments based on the 5% interest rate. This is a good option for borrowers who are risk avert.

Features of a fixed rate mortgage

Given below are some important features of FRMs:

FRMs are simpler to understand as compared to ARMs.
This type of loan is most suitable for individuals who want to know what their monthly housing expenses would be and for those who want to retain their home for an extensive time period.
The interest rate for FRMs is usually higher than ARMs since the risk sensed by lenders is higher. You shouldn’t expect to get a low interest rate with an FRM. Under this type of a loan, you exchange the privilege of an affordable interest rate for an assured monthly loan payment. No lender is going to give you the lowest possible rate on an FRM though an ARM can offer you an incredible rate at the start. 
In the beginning, the FRMs normally have higher monthly payments than ARMs.
These loans don’t have so much flexibility like the adjustable rate loans.

The most important reason why home buyers resort to FRMs is that these loans offer them financial stability. Without financial stability, it’s difficult to move ahead in life and achieve your short and long-term financial goals.