subject: Affordable Fixed Rate Mortgage Loan Rates [print this page] A fixed rate mortgage loan is a mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may float.
Other forms of mortgage loan include interest only mortgage, graduated payment mortgage, flexible rate including changeable rate mortgages and tracker mortgages , negative payoff mortgage, and balloon payment mortgage.
Take to consideration that each of the loan forms above except for a direct changeable rate mortgage can have a period of the loan for which a fixed rate may apply.
A Balloon Payment for fixed rate mortgage loan, for example, can have a fixed rate for the term of the loan followed by the ending balloon payment.
Terminology may differ from country to country: loans for which the rate is fixed for less than the life of the loan may be called hybrid flexible rate mortgages.
This payment sum is independent of the additional costs on a home some periods handled in escrow, such as property taxes and property insurance.
Thus, payments made by the lender may change over period with the shifting escrow sum, but the payments handling the principal and interest on the loan will remain the same.
Fixed rate mortgages are described by their interest rate which including compounding frequency, sum of loan, and term of the mortgage. With these three values, the calculation of the monthly payment can then be done.
The fixed monthly payment for a fixed rate mortgage loan is the sum paid by the lender every month that ensures that the loan is paid off in full with interest at the end of its term.
This monthly payment depends upon the monthly interest rate expressed as a fraction, not a percentage, i.e., divide the quoted yearly minimal percentage rate by 100 and by 12 to obtain the monthly interest rate, the number of monthly payments known as the loan's term, and the sum lendered known as the loan's principal; rearranging the formula for the current value of an regular allowance we get the formula.
Fixed rate mortgages loan are usually more expensive than flexible rate mortgages. Owing to the natural interest rate risk, long term fixed rate loans will lean to be at a higher interest rate than short term loans.
The change in interest rates among short and long-term loans is known as the yield curve, which usually slopes upward. The opposite situation is known as an inverted yield curve and is relatively infrequent.
The fact that a fixed rate mortgage loan has a higher starting interest rate does not indicate that this is a worse form of borrowing related to the changeable rate mortgages.
If interest rates rise, the ARM cost will be higher while the FRM will remain the same. In effect, the lender has agreed to take the interest rate risk on a fixed rate loan.
Some studies have shown that the majority of creditors with flexible rate mortgages save money in the long term, but that some creditors pay more. The price of potentially saving money, in other words, is balanced by the risk of potentially higher costs.
In each case, a choice would need to be made based upon the loan term, the current interest rate, and the likelihood that the rate will increase or decrease during the life of the loan.
by: Rick Lee
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