Legal Definitions - FRM

FRM stands for Fixed-Rate Mortgage.

A Fixed-Rate Mortgage is a type of loan used to purchase real estate where the interest rate remains constant for the entire duration of the loan. This means that the portion of your monthly payment allocated to interest and principal will not change over the life of the mortgage, providing predictable and stable payments.

Here are some examples illustrating a Fixed-Rate Mortgage:

• Example 1: First-Time Homebuyers

  Sarah and Tom are a young couple purchasing their first home. They secure a 30-year Fixed-Rate Mortgage at an interest rate of 4.5%. For the next three decades, their monthly principal and interest payment will remain exactly the same, regardless of fluctuations in the broader market interest rates. This stability allows them to budget effectively and provides peace of mind that their housing costs won't unexpectedly increase.

• Example 2: Real Estate Investor

  Maria is a real estate investor buying a duplex to rent out. She opts for a 15-year Fixed-Rate Mortgage. By locking in a consistent interest rate, Maria ensures that her loan payments are predictable each month. This predictability is crucial for her business model, as it allows her to accurately forecast her expenses and calculate her potential rental income and profit margins without worrying about rising interest costs impacting her cash flow.

• Example 3: Refinancing for Stability

  David initially took out an Adjustable-Rate Mortgage (ARM) several years ago. While the initial rate was low, it has started to increase, making his monthly payments unpredictable. To gain financial stability, David decides to refinance his existing loan into a 20-year Fixed-Rate Mortgage. By doing so, he converts his variable interest rate into a constant one, ensuring that his future monthly mortgage payments for the next two decades will be fixed and won't change, even if market rates continue to rise.