Fixed Rate Mortgage (FRM)
Fixed rate Mortgage is a type of loan that maintains a specified interest rate for the lifetime (or maturity) of the mortgage.
According to the Federal National Mortgage Association, first-time buyers often choose to go with a fixed rate mortgage because they want low monthly payments throughout the loan term. Buyers can also reap the greatest cumulative tax deductions available over the loan term when applying for the fixed rate mortgage.
Of course there are cons: generally, lenders require 20% down payments on conventional fixed rate mortgages, while with the Federal Housing Administration insurance, for instance, only 5% is required. Private Mortgage Insurance (PMI) can also help buyers purchase a home with only a 10% down payment. While buyers purchase private mortgage insurance (PMI) through private companies, lenders normally acquire the insurance for the buyers. So, first-year premiums are usually between .35% and 1.65% of the total loan amount, and depending on policy requirements, buyers must pay the premiums either in advance or monthly.
A twist on the 30-year fixed rate mortgage is the shorter term fixed rate mortgage, with either a 10 or 15-year loan term.
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Popular Mortgage Terms
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The maximum allowable increase in the interest rate on an ARM each time the rate is adjusted. It is usually one or two percentage points. ...
The maximum allowable decrease in the interest rate on an ARM each time rate is adjusted. It is usually one or two percentage points. ...
A documentation rule where the borrower discloses assets and their source but the lender does not verify the amount. ...
Cost-of-Funds Index, one of many interest rate indexes used to determine interest rate adjustments on an adjustable rate mortgage. ...
A lender that holds the loans it originates in its portfolio rather than selling them. ...
Loan applications that are withdrawn by borrowers, because they have found a better deal or for other reasons. ...
A borrower who does not meet the underwriting requirements of mainstream lenders. Sub-prime borrowers pay more than prime borrowers and are sometimes taken advantage of. ...
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