Fixed-rate loans are historically the most common type of residential loans because of their inherent stability and predictability. With a fixed rate loan, the monthly loan payment generally stays the same for the entire term of the loan (e.g. 15 or 30 years). The interest on a fixed rate loan may not decrease (unless you refinance) and you may not be able to qualify for as much of a loan with a fixed rate loan as you would with an adjustable or variable rate loan. But fixed rate loans offer more pros than cons for most borrowers. The stability of a fixed-rate loan provides for (1) proper budgeting of monthly costs, (2) long term budgeting, (3) inflation protection (against rising interest rates), and (4) less risk (because the loan payment will not increase based on market variables).
There are many types of fixed rate loans, including conventional (e.g. monthly fixed), interest only fixed, biweekly fixed, etc.
Conventional Fixed Rate Loans
A conventional fixed rate loan is generally a loan that is amortized over a certain number of years with loan payments that remain the same for every payment (except for possibly the last payment) during the loan term. Some commentators believe this to be the only true type of fixed rate loan. To determine your monthly payment under this type of loan, use our amortization calculator.
Interest Only Fixed Rate Loans
There are many variations in loan products. However, one of the most common interest only fixed rate products is divided into two periods. In the first period, the monthly payment is lower because the borrower pays only interest, and periodic payments do not count toward principal. In the second period of this type of loan, the borrower starts paying down principal (while paying both interest and principal). While this type of loan can leave more of the borrower’s cash available for other uses during the first period, the amount of the second period payments (principal & interest) are generally significantly more than the first period payments (and depending on the loan terms can simply require a lump sum or "balloon" payment of the remaining balance). A borrower should be certain he/she/it can afford the larger payment in the second period before choosing this type of interest only loan over a conventional fixed rate loan.
Biweekly Loans
Most loans on real property (especially residential real property) require monthly payments. Under a "biweekly" fixed rate loan, a borrower makes payments every two weeks instead, which equals 26 payments per year and allows the borrower to pay off the loan faster by making the equivalent of one extra monthly payment for every year of the loan term. Some borrowers prefer to pay bills once a month and view additional payments during the month to be burdensome. However, this type of loan can save the borrower money and direct withdrawal is a way to avoid having to make much effort when making a payment every two weeks. Most borrowers realize, however, that additional payments can be made on a regular monthly payment fixed rate loan at any time with the same impact and savings without beingobligated to make payments every two weeks. While making extra payments can equal big savings for a borrower, of primary importance is making schedule payments on time, to avoid default and protect the borrower’s credit rating.
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via:https://www.realestatemetro.com/blog/fixed-rate-loans-the-basics
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