Fixed Rate Mortgages
These programs offer the borrower a constant interest rate that is locked in for the duration of the loan term. Fixed Rate Mortgages, or FRM's, are not affected by base rate fluctuations in the market. This, in turn, means steady, reliable payments for the borrower and is particularly useful when rates are low. For people that have a limited income or plan to be in their homes for a considerable time period, this program is probably the best choice.
There is a danger in choosing a loan that has a fixed rate for a period of time in the beginning, but then a standard variable rate (SRV) for the rest of the term. An SRV is the standard rate charged by mortgage lenders, usually 1-2% higher than the base rate. So, if the base interest rate is 6% and you are paying 2% more than that, your new interest rate will be 8%, potentially eroding all of your previous savings. There could also be a heavy fee for breaking the loan term before its completion. Be sure you know all of the penalties, provisions, and terms of your loan.
15 and 30 years tend to be the most popular terms for FRM's. A 30 year fixed rate loan will have lower monthly payments then the 15; however, with the 15 your loan will be paid off twice as fast and you will save yourself 15 years of interest payments.
Another consideration is that with FRM's, there are often more fees associated with them, such as a non-refundable booking fee or an arrangement fee. Check out some of the other mortgage programs as well: Adjustable Programs (ARM's) and Cash Out Mortgages.