When it comes to mortgage loans, there are two primary kinds – adjustable-rate mortgages (ARMs) and fixed-rate mortgages (FRMs). The “adjustable” and “fixed” parts of the mortgages refer to the interest rate. As the name suggests, an adjustable-rate mortgage has an interest rate that can fluctuate over the life of the loan. On the other hand, a fixed-rate mortgage’s interest rate doesn’t change during the loan.
Fixed-Rate Mortgages
While there are fixed-rate mortgages that have the same or “level” payments throughout the loan, there are also some with payments that increase or decrease over the years. Mortgage payment is split between interest on the loan and the cost of the home, or principal. In the first years of a fixed-rate mortgage, most of the monthly mortgage payment goes toward the interest. As the years pass, more of the payment goes toward principal and less toward the interest. Continue reading