Fixed rate mortgage
Posted on March 7, 2008 - Filed Under Loans |
In a fixed rate mortgage loan, the interest rate is not ‘floating’ as in the case of other types of loans. In this, the loans are fixed throughout the term of the loan. Additional costs on the property such as taxes and insurance does not affect the payment amount. In this type of mortgages, the amount payable changes with the changing escrow amount, but, the payments on the interests and the loan remains the same. The monthly payments calculation is based on compounding frequency, amount of loan and the term of mortgage. Although fixed term mortgages are popular in some part of the world, true fixed-term mortgages are not popular except for shorter-term loans.
Longer-term loans are fixed for a certain period around 40 to 50 years and shorter terms are for about 15 to 30 years duration. Keep in mind that fixed term mortgages are more expensive than floating rate mortgages. It is fact that longer term fixed rate loans has higher interest rates than a short-term one; it is generally called the “yield curve”, whereas, the opposite phenomena to the “yield curve” is called the “inverted yield curve”, which is infrequent in normal cases. However, this does not mean that fixed rate mortgage is a worst form of borrowing money. It has its own set of advantages.
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