Mortgages may be either fixed rate mortgages (FRM) or adjustable rate mortgages (ARM). In the case of fixed rate mortgages, the interest payments remain constant during the whole term of the loan. In adjustable rate mortgages the interest payments change in relation to the bank rate. A fixed rate mortgage can be taken for any period of time. They are normally for 30 or 15 years, though other options are also possible. The point to be remembered is that in a fixed rate mortgage, the interest payments are inversely proportional to the term. Thus, if the period of your mortgage is longer, or interest rate is usually lower, you pay less per month. However, a shorter-term mortgage allows you to get complete ownership of the property more quickly. The total amount you pay as interest is also reduced substantially, even though the monthly payments are more. You can also take the option of paying interest every two weeks (bi-weekly) instead of every month. That means you pay half of the monthly requirement every two weeks. This is adjusted against the principal loan. As a result, the total amount of interest you pay also decreases. Some lenders even allow you to convert an adjustable rate mortgage into a fixed rate mortgage after a set time period. The advantage of this is that your initial rates are lower as in an adjustable rate mortgage, but you also get the benefit of a fixed rate mortgage in the latter part of the term. The most attractive feature of a fixed rate mortgage is predictability. Since the amount you pay every month (or every two weeks) remains fixed during the whole term, it allows for better financial planning. Therefore, the fixed rate mortgage is a popular option for many borrowers. |
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