Fixed Rate Mortgages are one of the two basic major types of mortgages, the other being an Adjustable Rate Mortgage.
The rate of interest charged for Fixed Rate Mortgages is set for the term of the mortgage.
The fixed rate term for the mortgage can vary from 10 years to as many as 40 years, with the 30 year fixed rate being the most popular.
Generally, most relatively small borrowers historically have used and presently use Fixed Rate Mortgages for their financing needs; however, recently more than half of larger mortgage borrowers have been using Adjustable Rate Mortgages.
The major reason for selecting a Fixed Rate Mortgage is that the borrower knows the exact payments required to be made for the mortgage term and the issuers originate the loan based on their belief that the borrower is capability of fulfilling the terms of the mortgage loan.
As with a Adjustable Rate mortgages, repayment of the mortgage is both interest and principal.
The rate charged, determined at issuance, on Fixed Rate Mortgages is typically based on current market derived equivalent US Government bond interest rates coupled with a lender’s determination of the loan repayment capabilities of the borrower. Generally, this repayment capability is based on the borrower’s LIFO score (375 to 900), an evaluation of the borrower’s credit history and a grading of the loan from A to D. The higher the score the less the perceived repayment risk and consequently a lower interest rate is made available to the borrower.
In addition to the current market derived rate for Fixed Rate Mortgages, the mortgage brokers and direct lenders add some sort of margin, fee or additional cost to the base cost, this can take the form of “points”, other fees, or a “spread”.
Consequently, the cost of borrowing for similar loans with similar loan terms can vary for individual borrowers and from different lenders.
Fixed Rate Mortgages are offered through mortgage brokers and from direct lenders.
Potential users of this type of real estate financing product should: ask questions, check with several offering companies, take your time and compare product offering, and understand the product. Generally speaking Fixed Rates Mortgages are not exceedingly complex financial instruments; however, users of these type financial instruments should be conversant with and understand the terms, conditions, tax consequences and other implications of using these products for their real estate mortgage needs versus other alternatives generally available to them.
