Fixed Rate Mortgages
A fixed-rate Mortgage is a mortgage that has an interest rate that stays the same for the entire term of the loan. In general, the fixed-rate mortgage will also have a fixed mortgage payment for the term of the loan. However, some types of fixed-rate mortgages do not have fixed payment.
For example, one type of early fixed-rate mortgage had a fixed principal payment, but the interest would decline each month as the payment on the principal balance was lowered. The interest would be calculated on the outstanding balance resulting in the same fixed principal payment, but a lower interest payment. The disadvantage to this type of mortgage is that in the early years of the loan, the payments would be high. However, over the long term, the payments would be lower giving you more of your income for other needs. Not all lenders offer declining payment fixed-rate mortgages.
Not only can a fixed-rate mortgage have a declining payment, but they can also have a rising payment, known as a "graduated payment mortgage" or GPM for short. Not all lenders offer graduated payment mortgages. However, the advantage for borrowers with bad credit is that the GPM may allow a borrower to qualify for a mortgage who does not otherwise quality for a standard fixed-rate mortgage. This is because the initial payment is used to qualify the borrower. The payments rising over time might be good for those just starting out because incomes may rise as the payments rise.
Another type of fixed-rate mortgage is an interest only fixed-rate mortgage. This type of mortgage does not have fixed payments. The initial payments are interest only. However, the borrower may choose to pay down the principal in the home loan and decrease their payments until the end of the interest only term.
These are the basic types of fixed-rate mortgages. Whether you have good credit or bad, be sure to research the different types of home loans available in order to make the wisest decision to manage your money and credit.
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