What's an FRM?

A fixed rate mortgage is recommended by most mortgage industry experts. FRMs are safe and predictable, allowing you to plan and structure your other finances. A good example of the FRMs dependable nature is a look back into the lending industry's history. Back in the 1960s when the lending industry was more honest and responsible, the FRM was the ONLY mortgage loan offered.The invention of the adjustable rate mortgage was a creation by lenders later on to 'mask' a more expensive loan and make the banks and lenders more money.

Still, fixed rate mortgages are not advantageous to everyone.In certain instances, ARM loans are more valuable. So it is important to understand the functions of a FRM.

On a FRM loan, the interest rate you pay on a monthly basis stays the same for the life of the loan.The fixed interest rate is decided upon by the market at the time of getting your loan.You have this interest rate for the entire life of the mortgage.

Regardless, the interest rate on a loan is really SECONDARY to what should be focused on when choosing a loan. Rate shopping accomplishes only two things: it tells the lenders you have no idea what you are doing, and it puts you in a vulnerable position to be taken advantage of.How come rate shopping is such a imprudent move on the borrower's part?All the experts will tell you: with a loan, the term, or over how many years your loan is stretched out, is lightyears more important than how low you've negotiated your interest rate. Lenders also like to quote low rates for rate shoppers, then jack up the rates later on and hole the market responsible.

To illustrate this, let's look at a $100,000 loan with a 5% interest rate. Well, these are NOT the only factors. And in this instance, some people would think they're only paying around $5,000 for borrowing the money.But $105,000 to borrow a $100,000 loan only works If you were to repay the mortgage in ONE year.

But mortgages do not allow you to repay within one year. It normally takes 30, 40 or 50 years to pay off a mortgage loan. And how much interest you pay for is exponential.

Here's an example: on a $100,000 loan at 5% for 20 years, you pay $158,389...With a mortgage loan that is stretched for 30 years, you pay $193,255.78.That's $90,000 in interest to borrow a $100,000 loan!

This is why the term of your loan is so important.

This is why experts suggest getting the shortest term possible while still being able to keep up on your monthly payments.This is how it works with loans: the shorter term means higher monthly payments.

You would benefit from a FRM if you plan to stay in your home for more than 10 years without moving.The advantage of the predictable FRM is that it allows families to plan additional financial goals around a payment they know the amount of. With an ARM loan, it is beneficial for someone who doesn't anticipate staying in their home for more than 3 to 5 years. Home owners who are moving relatively soon can get an ARM loan for its low initial rate, and move out before the initial rate ends. But if your goals are to get a home and stay in it for a long time, a FRM will be more beneficial... and always remember the term is the most important part of any loan!


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