The traditional fixed rate mortgage is the most common type of loan program, where monthly principal and interest payments never change during the life of the loan. Fixed rate mortgages are available in terms ranging from 15, 20, 25 to 30 years. This type of mortgage is structured, or “amortized” so that it will be completely paid off by the end of the loan term.
Even though you have a fixed rate mortgage, your monthly payment may vary if you have an “impound account”. In addition to the monthly principal and interest payment, lender may collect additional money each month (for example from homeowners who put less than 20% cash down when purchasing their home or had less than 20% equity when refinancing their home) for the prorated monthly cost of property taxes and homeowners insurance. The extra money is put in an impound account by the lender who uses it to pay your property taxes and homeowners insurance premium when they are due. If either the property tax or the insurance happens to change, your monthly payment will be adjusted accordingly. However, the overall payments in a fixed rate mortgage are very stable and predictable.
-Rates and payments remain constant, despite what happens in the broader economy
-Easy to manage your finance and budget
-Simple to understand
-Best for homeowners who will stay in a house for many years
-You may be locked in a relatively higher rate. To take advantage of future lower rate environment, you need to go through refinance process
-you are also locked in the amount of minimum monthly payment. If you paid down a big amount of principal, normally you will not be able to adjust your minimum monthly payment unless lender grants exception or you go through refinance procedure.