Fixed Rate Mortgage vs. Interest Only Mortgage
A fixed rate mortgage has the same payment for the entire term of the loan
Fixed Rate Mortgage
A fixed rate mortgage has the same interest rate and monthly payment throughout the term of the mortgage. The payment is calculated to pay-off the mortgage balance at the end of the term. The most common terms are 15 year and 30 years.
A fixed-rate mortgage (FRM) is a mortgage loan first developed by the Federal Housing Administration (FHA) where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float." Other forms of mortgage loan include interest only mortgage, graduated payment mortgage, variable rate (including adjustable rate mortgages and tracker mortgages) , negative amortization mortgage, and balloon payment mortgage. Please note that each of the loan types above except for a straight adjustable rate mortgage can have a period of the loan for which a fixed rate may apply. A Balloon Payment mortgage, for example, can have a fixed rate for the term of the loan followed by the ending balloon payment. Terminology may differ from country to country: loans for which the rate is fixed for less than the life of the loan may be called hybrid adjustable rate mortgages (in the United States).
This payment amount is independent of the additional costs on a home sometimes handled in escrow, such as property taxes and property insurance. Consequently, payments made by the borrower may change over time with the changing escrow amount, but the payments handling the principal and interest on the loan will remain the same.
Fixed-rate mortgages are characterized by their interest rate (including compounding frequency, amount of loan, and term of the mortgage). With these three values, the calculation of the monthly payment can then be done.