Fixed-Rate Mortgage Basics

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Fixed-Rate Mortgage (FRM)

Fixed-rate mortgages are popular because they’re relatively simple and low-risk.  The most common types are 15- and 30-year FRMs, although other terms are available.

Advantages

  • Stable monthly payments
  • Rising interest rates have no effect on the cost of borrowing
  • The opportunity to make extra payments on the principal can significantly reduce the length and cost of the loan
  • The mortgage is paid in full by the end of the term

Disadvantages

  • Falling interest rates have no effect on the cost of borrowing
  • The interest charged is generally higher for FRMs, because lenders assume the risk of any gap between your long-term rate and what they could get on a new mortgage in a tight money market
  • Penalties for paying off the loan early are often included, which can be hefty
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