Fixed-rate mortgages provide payment stability because the borrower knows exactly what the payment will be each month. The most common terms are 30-year and 15-year. A 15-year mortgage has higher monthly payments but saves significantly on total interest. In the early years of a fixed-rate mortgage, most of the payment goes toward interest; in the later years, most goes toward principal. This is called amortization.
A borrower obtains a 30-year fixed-rate mortgage at 6.5% for $300,000. The monthly principal and interest payment is approximately $1,896 and will remain the same for all 360 payments. The total interest paid over 30 years would be approximately $382,560.
Fixed-rate mortgages are the most common loan type and frequently tested. Remember that even though the payment stays the same, the portion going to interest vs. principal changes each month (amortization). Compare with ARM where the rate and payment can change.
Related Terms
Related Concepts
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
Frequently Asked Questions
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