If you are new to mortgages or just don't remember going through the process the last time you financed a home purchase, this article will explain some important features of the loan known as the fixed rate loan or fixed rate mortgage. These are pretty easy to come by and the product that is the most familiar to people purchasing or refinancing homes. A purchase of a home is most likely the largest outlay of funds you'll experience during your life, so understanding the fixed rate mortgage is important knowledge to have.

The fixed rate mortgage is by far the most common type of mortgage. When new homebuyers begin pricing loans, these are typically where people will start. Most fixed rate mortgages advertised also usually talk about the rate for a 30 year "fixed" rate. When people talk about their mortgage, there is a very good chance that they are referring to their 30 year fixed. A little less common are the adjustable rate mortgages. Of course there are dozens of different mortgage products available based on the needs you have. Interesting that the selling of "money" is basically packaged in different forms just like any other product or service.

These fixed rate mortgages are most commonly setup with 15 or 30 year term, but also have options for a 10 year or 20 year, or even a 40 year mortgage. The longer the mortgage term, typically the lower the interest rate as the bank or financial institution that is extending the loan will typically make more money, at least via interest paid on the loan. This is why the shorter term rates are typically a higher rate.

One of the main advantages to the fixed rate mortgage is that the rate doesn't change. This can be great as your payment may stay low for the duration of the loan even if inflation or other financial considerations may change over that same period of time. Some mortgage programs also have a bi-weekly payment option where you'll pay your mortgage every two weeks. Assuming your monthly mortgage was $2000 per month, this is broken down to about $1000 every two weeks which is nice because it has two benefits, one benefit is that it matches some pay structures, i.e. many companies in the US typically pay your salary every 2 weeks. Of course this also means that instead of 12 payments of $2000 or $24,000 per year, you'll pay $1,000 every other week which would be 26 payments (52 weeks per year / 2 (every other week)). The total amount of funds that would then contribute to your loan amount would be $26,000 which would pay down your loan more this way or reduce your overall payment amount. Consult your loan officer for details on the bi-weekly payment plan.

The other benefit to a fixed rate mortgage is that at the end of the loan, you don't have a balloon payment or the need to come up with any other money that you haven't already been paying. Some mortgage products have a balloon payment that would require you to come up with additional funds at the end of the term or cause you to refinance the balance in order to keep your home.

On a typical 30 year fixed rate mortgage, you'll pay your monthly payment of which a percentage of that amount would go toward the principal and the other percentage goes towards interest. This is done on a sliding scale, so the first years of the mortgage, you'll be paying more in interest to the bank than paying down your loan. This is as designed by the banks who fund these mortgages. Their expectation is that they get their interest paid to them before you're "allowed" to use more of your regular monthly payment to go towards the principal. This is all done behind the scenes, but it is interesting to know that you won't start paying more towards your principal than interest until year 22 of your mortgage. There isn't anything to prevent you from paying down your mortgage early, however, and may be a very good idea depending on your life situation.

Establishing your first fixed rate mortgage or even refinancing for the 10th time shouldn't be a complicated process. The key to getting this done is to find a loan officer you can trust who will work with you and educate you as needed so that you understand what you're paying for. Because this is such a large dollar amount that you'll typically be paying for a home, there are ways that you can get caught paying more than you should and even small percentage changes over the life of the loan may result in you paying thousands of dollars more in interest. There are a lot of mortgage calculators out there as well you can use to give you some rough estimates.