Which Frm Is The Best One For You?

By Author: Scott F. Staudt
Total Articles: 91
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An FRM (fixed rate mortgage) can have a term as little as ten or as long as forty years. The choice of an FRM is the choice of paying less each month, but paying over a longer time. The best thing is to find the right balance between the mortgage you can afford for the shortest FRM.

Longer term FRMs can cost a lot more overall than shorter term ones. A FRM of just ten years can carry monthly payments that as much as twice as high as that of a 40 year mortgage.

In addition, the interest rate risk the bank takes on a forty year home loan is much greater than on a ten or fifteen year home loan, since so much more in interest rate fluctuations can occur during this longer time.

Because of these various mixes, the 15 to 30 year FRMs are usually the ones that offer the best mix of lower monthly payments with lower overall costs and lower interest rates. On the other hand, a 40 year term will have low payments but a relatively high interest rate.

Most people, therefore, find that the fifteen year term fixed rate mortgage carries the best combination of affordability and low interest rate.

Once ...
... your mortgage broker has calculated the amount of monthly payment you can expect to pay on a fifteen year home loan, you can then decide if this is what you can afford. If you have chosen a term with a payment that is too high, you can tweak the term until you get the ideal payment.

If you do take a longer term FRM for current affordability, you can always pay more down to reduce the principal. Many times a young couple may have to keep their mortgage payment low, but as their salaries increase, can afford to pay more. If you make additional payments on the loan, you are effectively lowering the maturity.

Either with your broker or on the internet, it is simple to calculate much your monthly payment will be. A lot of people find it easier to just have a mortgage broker do all of this work on their behalf.

In either case, the goal is to find the FRM that will yield you the monthly mortgage payment you can afford while keeping the maturity of the loan as low as possible.
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