A fixed rate mortgage (FRM) is a home loan where the interest rate is fixed for the life of the loan, regardless of what rates do over the life of your loan. This ensures that your payment remains the same each month, which can make budgeting a lot easier. The portion of the payment that goes to your principal (the loan amount) increases, however, your interest payment will decrease in the same amount. Your property taxes may go up (or rarely, down), and so might the homeowner’s insurance in your monthly payment. But generally payments on your fixed-rate loan will increase very little.

When you first take out a fixed-rate loan, most of your payment is applied to interest. The amount applied to your principal amount increases up gradually each month. Furthermore, if your loan has an escrow account that is collecting for taxes or insurance, that likely will change over time and cause your payment amount to change annually.

You can choose a fixed-rate loan in order to lock in a low rate. People choose these types of loans because interest rates are low and they want to lock in this lower rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can offer more monthly payment stability.

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