Question:

Fixed Rate Mortgage (FRM) Definition

Answer:

The fixed rate mortgage (FRM) carries constant rate throughout the life term of the loan as opposed to pure adjustable rate mortgages whose rates fluctuate depending on the interest they are tied to. There are many mortgage loans that can have a fixed rate period for limited time, such as balloon mortgages, hybrid ARMs, and others.

A fixed rate mortgage (FRM) is defined by the interest rate, compounding frequency, loan amount and term. Unlike ARMs, FRMs are not tied to an index. The fixed rate mortgage (FRM) rate is based on an index plus margin to arrive at the Fully Indexed Rate.

Fixed rate mortgages are the most traditional home loan in the US. It is more expensive and more difficult to qualify for an FRM compared to other home loan types. Fixed rate mortgages are commonly used with 15 or 30 year terms.

Sometimes borrowers are offered to contribute towards the principal, thus reducing the term of the mortgage and saving in interest. There might be prepayment penalties associated with prepaying the principal of  a fixed rate mortgage (FRM). Sometimes, if rates drop considerably, borrowers will opt out and refinance their FRM.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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