A fixed-rate mortgage (FRM) offer a monthly payment that does not change over time, and result in a portion of the loan’s principal being paid down every month. Typically, the shorter the loan period, the more attractive the interest rate will be. It was the first mortgage loan that was fully amortized (fully paid at the end of the loan) precluding successive loans, and had fixed interest rates and payments. Fixed rate fully amortizing loans have two discrete features:
- the interest rate remains fixed for the life of the loan.
- Secondly, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term.
The most common terms are 15-year and 30-year mortgages, but shorter terms such as 10 year are available as well. 15 or 30-years are the most popular fixed rate mortgage loan terms. A 30-year amortizing loan typically has lower payments than a 15-year loan, but a slightly higher interest rate than a 15-year loan.
Payments on fixed-rate fully amortizing loans are calculated so that the loan is paid in full at the end of the term. During the early amortization period, a large percentage of the monthly payment is used for paying the interest . As the mortgage is paid down, more of the monthly payment is applied toward the principal.