Fixed Rate Mortgages
The traditional fixed rate mortgage is the
most common type of loan programs, where monthly
principal and interest payments never change
during the life of the loan. Fixed rate
mortgages are available in terms ranging from 10
to 30 years and can be paid off at any time
without penalty. This type of mortgage is
structured, or "amortized" so that it will be
completely paid off by the end of the loan term.
There are also "bi-weekly" mortgages, which
shorten the loan by calling for half the monthly
payment every two weeks. (Since there are 52
weeks in a year, you make 26 payments, or 13
"months" worth, every year.)
Even though you have a fixed rate mortgage,
your monthly payment may vary if you have an
"impound account". In addition to the monthly
loan payment, some lenders collect additional
money each month (from folks who put less than
20% cash down when purchasing their home) for
the prorated monthly cost of property taxes and
homeowners insurance. The extra money is put in
an impound account by the lender who uses it to
pay the borrowers' property taxes and homeowners
insurance premium when they are due. If either
the property tax or the insurance happens to
change, the borrower's monthly payment will be
adjusted accordingly. However, the overall
payments in a fixed rate mortgage are very
stable and predictable.
