FRMs

There are two basic types of home mortgage, fixed rate and adjustable rate. Fixed-rate mortgages (FRMs) are most popular. They feature locked-in interest rates and long repayment terms.

The popularity of FRMs can be attributed to their stability. Most people prefer a loan that is predictable. They want to know that their monthly payments will not go up. They also want to know that their interest rate will never rise, even if market rates skyrocket.

Another attribute that makes FRMs so popular is their user-friendliness. Many borrowers are intimidated and confused by financial jargon and long contracts. Adjustable-rate mortgages, by contrast, tend to have complex terms that require more savvy.

Obviously, market rates largely shape the interest rates of fixed-rate home mortgages. For that reason, many borrowers choose to monitor the market before they buy a house, waiting for ideal conditions.

The repayment terms of FRMs are generally either fifteen years or thirty years. If your budget permits a higher monthly payment, the fifteen-year term is advisable because it will usually feature a lower interest rate. A shorter term also builds equity faster.

For various reasons, many borrowers choose the longer, thirty-year term. Interest rates are usually higher with this type of loan, which means that the total amount you pay for your mortgage will be higher. On the plus side, the long life of the loan helps reduce monthly payments, which makes the house more affordable for people with low incomes or scarce savings. Other times, people choose the longer term so they can buy a bigger house than they could afford with a fifteen-year term.