What is a Fixed Rate Mortgage?

What is a Fixed Rate Mortgage (AKA: FRM)? Simply put, FRMs are a type of mortgage with an interest rate that doesnt change until the end of the term. Unlike other mortgages like adjustable rate home loans where the interest changes as rates go up or down, once you lock in to a fixed rate mortgage you are guaranteed that rate. This can be beneficial if a) you find a great rate b) rates are expected to go up and c) financially you know precisely what you will be paying on a monthly basis.

It should be noted that though your interest and principal payment amounts will not change over the course of the mortgage term, payments may vary slightly. This occurs because of any additional costs typically held in escrow for the home and can include: home insurance, any fees (such as condo fees) and of course property taxes.

Key factors that characterized fixed rate home loans are: fixed rate of interest, this includes the loan amount, length of the mortgages term and compounded interest. It is with these factors that you may successfully calculate your average monthly payment amount.

Please note: the compounding frequency may change from country to country. For instance, in the US compounding typically occurs once a year whereas in Canada it occurs every six months.

So now that we have all the relevant data you may then plug it into an Excel sheet under the PMT financial tab that will give you your monthly payments. It should look something like this: =PMT(6.5/100/12,30*12,200000) =((6.5/100/12)/(1-(1+6.5/100/12)^(-30*12)))*200000 = 1264.14 Where 200000 is the amount of the mortgage, 6.5 is the fixed interest rate, 30 is the term and 12 is the annual compounding period.

For more information and resources regarding mortgages visit our TopMortgagesFinder com site.

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