Fixed Rate Mortgages and Payment Formulas
What is a Fixed Rate Mortgage (AKA: FRM)? Simply put, FRMs are a type of mortgage with an interest rate that doesnt change until the end of the term. Unlike other mortgages like adjustable rate home loans where the interest changes as rates go up or down, once you lock in to a fixed rate mortgage you are guaranteed that rate. This can be beneficial if a) you find a great rate b) rates are expected to go up and c) financially you know precisely what you will be paying on a monthly basis.
Despite the fact that your payment will not change regarding interest and principal amounts, payments may fluctuate slightly based on extra costs associated with the property, such as: insurance, condominium fees and property tax.
If you would like to make a calculation to see your monthly payment amount simply take the following four pieces of information: total amount of the mortgage, interest rate, the term of the loan (1-50 years), and the time to compound the interest.
Please note: the compounding frequency may change from country to country. For instance, in the US compounding typically occurs once a year whereas in Canada it occurs every six months.
Knowing the variables you can plug everything into an Excel spread sheet under PMT in the financial tab. For a loan of 200,000 over the course of 30 years and an interest rate of 6.5% your formula will look this: =PMT(6.5/100/12,30*12,200000) =((6.5/100/12)/(1-(1+6.5/100/12)^(-30*12)))*200000 = 1264.14
Good luck with your mortgage, for more information on mortgages, rates and quotes please see our site TopMortgagesFinder com.
Janet Avanche is a mortgage and credit expert with nearly 20 years of expertise and is a mortgage consultant for TopMortageFinders.com. For more information, free mortgage related advice and answers to question such as: the best fixed rate mortgage and how to get mortgage free for life see our site.