Loan Articles

The fixed rate mortgage represents a mortgage loan instrument whereby the interest rate is fixed, remaining unchanged throughout the loan’s term. This type of mortgage is in contrast to other debt instruments where interest rates float or adjust. Other types of mortgage loans include variable rate mortgages, graduated payment mortgages, interest only mortgages, etc. Except for the adjustable rate mortgage, these types of loans may come with a period during which a fixed interest rate applies.

The main characteristic feature of fixed rate mortgages is interest rate, including the mortgage’s term, loan amount, and compounding frequency. The monthly payment calculation is possible using these values.

The fixed rate mortgage is also known as a plain vanilla mortgage due to the ease with which borrowers understand its features. Moreover, it does not come with the same risks that floating rate mortgages and ARMs carry. It should be kept in mind, however, that the amount of payments is unrelated to any additional costs such as property insurance and property taxes. As a result, the payments a borrower makes can change over the term of the mortgage, due to changes in the escrow amount. The payments for the interest and principle of the mortgage, however, remain unchanged.

At the start of the loan’s term, the largest portion of the payment goes for interest, with only small amount paying off the principal. With time, the amount of payment going toward the interest is reduced. The amount used to pay off the principal increases until the mortgage is paid off in full. Then, the mortgage loan is known as fully amortized.

Typically, when borrowers choose between an adjustable and fixed rate mortgage, there is a tradeoff between awards and risks. Depending on the market, the adjustable rate mortgage may come with a large initial payment compared to the fixed rate mortgage. At the same time, the payments on adjustable rate mortgages increase over time. With fixed rate types, the homeowner should not be worried about varying payment amounts, fluctuating with the movement of the interest rate.

While fixed rate mortgages are popular loan instruments in the United States, they are not widely available in other states. In Canada, the longest mortgage term over which the interest rate remains fixed is usually no longer than 10 years, with mortgage maturities being about 25 years. TD Canada Trust, for example, offers fixed rate mortgages with terms between 1 and 7 years and well as 10-year mortgages. The payment options are monthly, semi-monthly, bi-weekly, and weekly. The payment amounts may be increased by up to 100 percent, and no charges are incurred. The prepayment amount is up to 15 percent a year. Likely applicants are Canadian residents of the majority age in their territory or province of residence. They should reside at the same address for the following thirty days. Holding an account with TD Canada Trust or having a checking account at some other financial institution is another requirement.

The Canadian Imperial Bank of Commerce offers fixed rate closed mortgages. The term ranges again from 1 to 7 years or clients can opt for a 10-year mortgage. The interest rate can be set as low as 4.39 percent. There are four payment frequency options: monthly, semi-monthly, weekly, and bi-weekly, and the minimum loaned amount is $10,000. Those who want to make additional payments are allowed to prepay as much as 10 percent of the original mortgage per year. An increase of the borrowers’ payment amounts in possible, in terms of both, interest and principal. The amortization period over which to pay off the mortgage is 35 years.