This type of mortgage means that the rate of interest stays the same through out the borrowing period. This is to ensure a steady pay back amount for the borrower and they can always be aware of what their repayments will cost. So not only does it help the borrower in the way they know exactly how much they have to pay but also the lender because they are likely to get constant re-payments, because the borrower can plan their finances better.
There are different types of fixed rate mortgage there are those that stay the same through out the entire term of the loan and then there are those that stay the same until the final payments when they rise to pay off the loan in full with fewer payments. This final amount varies dependant on the additional charges outstanding on the property and the interest on the actual loan amount.
Fixed rate mortgages are characterized by their interest rate, amount of loan, and term of the mortgage. It is with these three points considered that the monthly re-payment amount is determined.
Margin – This determines the interest rate of the mortgage loan over the pay back term. It is shown in a percentage form so the lower the percentage the better the interest rate on the loan. Most of the margin percentages range between as low as 2% right up to 7%, so to find the best deal you may need to look around several lenders.
Term – This is the length of time agreed between lender and borrower on how long it will take to repay the loan. Many of these agreements are for around 30 years and there is the option to pay either yearly payments or the more common is the monthly re-payment plan.
The pricing of the fixed rate mortgages may be slightly higher than those that vary but then there is not the chance of them going above a certain rate. So this may be a disadvantage in the way it can’t drop in price but then you always have the knowledge that it won’t go up in price either. There is however a risk from the lenders point of view because of the fact they can’t raise the price as other mortgage companies may increase their rates. Although when the mortgage companies reduce the rates as an introductory offer to new customers existing customers rates tend to stay the same. This is one reason many people don’t choose FRM because as the variable ones can drop in price where as they stay the same no matter what.