Fixed Rate Mortgages

In the simplest terms, a fixed rate mortgage is a plan that locks in one specific interest rate for the duration of the loan term. Fixed rate mortgages, or FRM's, are not affected by the fluctuations of the market, which is good for the customer if rates rise but not so much if the rates fall, as the trend has shown in the last couple of years. Therefore, a homeowner with say a 30-year FRM from ten years ago would be wise to consider refinancing. If the 30-year was replaced with a 15-year term and the program switched to an ARM (Adjustable Rate Mortgage), thereby capitalizing on the current low interest rates, the monthly payments would would be considerably less and they would end up paying off the loan in half the time.

Fixed rate plans: 15 and 30-year FRM's are the most popular type of fixed rate plans, though there are combinations called hybrids, which combine aspects of FRM's with adjustable rate plans. Be wary of plans that have a fixed rate for the beginning of the loan term, and then a SRV, or a standard variable rate, for the rest. These are often called "teasers," and are used to lure potential borrowers into accepting a loan with an interest rate nearly two percent higher then the base rate.

FRM's are particularly useful when rates are low, and usually fit those types of people who like steady, dependable monthly payments, though the rates might be a bit higher than with an Adjustable Rate plan and also might carry some extra fees at closing (booking or arrangement fees).

There are many tools available to help the customer figure out the true cost of a loan; most calculate annual income, monthly debt, down payment, property taxes, insurance costs, the loan term, the loan amount, and the interest rate. For starters, you can use the calculator below (click on it) to calculate the true cost of your loan. Other well-known mortgage plans include: Adjustable Rate, Balloon, and Cash-out mortgages.

To see what the current market rates are for 15-year FRM's, please see our survey.