Everything You Need To Know About Fixed Rate Loan Abbreviations

Just like the military, the mortgage industry uses plenty of acronyms. It might sound like a foreign language if you’re a first-time homebuyer who is unfamiliar with the lingo. Use this list of the top 11 mortgage acronyms and abbreviations as a guide to help you in your military mortgage research and meetings with a trusted mortgage lender.

Read on to learn the definitions of these mortgage acronyms, which have been organized into three categories: Types of Mortgages, Mortgage Acronyms About Your Rate, and Mortgage Acronyms About Your Application.

A fixed rate loan is a type of loan where the interest rate remains the same for the entire term of the loan This provides predictability for borrowers, as their monthly payments do not fluctuate with changes in market interest rates Fixed rate loans are commonly used for mortgages, student loans, auto loans, and personal loans. Understanding the common abbreviations for fixed rate loans can help you navigate loan terminology.

What is a Fixed Rate Loan?

A fixed rate loan has an interest rate that is set at the beginning of the loan term and does not change. This means that the borrower’s monthly payments stay the same over the life of the loan, providing certainty in budgeting. In contrast, adjustable rate loans have interest rates that fluctuate periodically based on an index like the prime rate.

The most common types of fixed rate loans are

Mortgages – Long-term loans for purchasing a home. Popular terms are 15 and 30 years.
Auto Loans – Short-term loans, usually 3-6 years, for purchasing a vehicle.
Student Loans – Loans to finance higher education expenses. Terms depend on repayment plan.
Personal Loans – Loans that can be used for various personal expenses. Terms are generally 2-5 years.

Fixed rate loans allow borrowers to lock in a low interest rate even if market rates rise in the future. However, borrowers lose the ability to take advantage if rates fall. Lenders benefit from fixed rate loans when rates rise, but lose out on higher yields if rates decline.

Common Fixed Rate Loan Abbreviations

There are several common abbreviations used in finance and banking to refer to fixed rate loans:

FRM – Stands for Fixed Rate Mortgage. This is the most common abbreviation for a fixed rate home loan.
FRAL – Stands for Fixed Rate Auto Loan. Used to abbreviate a fixed rate car loan.
SFRSL – Stands for Student Fixed Rate Student Loan. Refers to a fixed interest student loan.
FRPL – Stands for Fixed Rate Personal Loan. Used for fixed rate personal loans.
BA – Stands for Balloon Amount. Refers to a large final payment due on some non-amortizing fixed rate loans.
IO – Stands for Interest Only. Some fixed rate loans are interest-only, with no principal repayment until maturity.

Features of Fixed Rate Loans

There are some key features that characterize most fixed rate loan products:

Fixed Interest Rate – The interest rate remains constant over the full loan term.
Fixed Monthly Payment – Monthly principal and interest payments are the same each month.
Amortization Schedule – A schedule defining how each payment is divided between interest and principal repayment.
Maturity Date – The final date when the loan must be fully repaid.
Prepayment Penalties – Fees charged if the loan is paid off early, depending on the lender.
Late Fees – Charges added if a payment is past due, usually a percentage of the overdue amount.

Pros and Cons of Fixed Rate Loans

Fixed rate loans offer benefits as well as some potential drawbacks:

Pros:

Predictable payments that simplify budgeting
Protection from rising interest rates
Ability to lock-in a low rate for long-term financing

Cons:

Inability to take advantage of falling interest rates
Potential prepayment penalties if refinancing or paying off early
Higher rates than adjustable rate loans in some cases

How Fixed Rate Loans Work

When you take out a fixed rate loan, the lender will determine the interest rate based on your creditworthiness and current market rates. This interest rate is then fixed for the full term of the loan.

Your monthly principal and interest payments are calculated based on the loan amount, interest rate, and loan term using an amortization schedule. This schedule determines how much of your payment goes towards interest vs principal each month.

In the early years, interest makes up the majority of the payments. But as the loan amortizes, the principal portion increases and interest decreases over time. The final payment will pay off the last of the principal and interest owed.

Examples of Fixed Rate Loan Terms

Here are some examples of common fixed rate loan terms:

30-year fixed rate mortgage – A home loan with a 30 year term and fixed rate. Monthly payments of principal and interest stay the same for 360 months.
5-year auto loan – An auto loan with a 5 year term and fixed interest rate. 60 monthly payments of principal and interest are fixed for the term.
10-year student loan – A student loan with a 10 year repayment term and fixed rate. 120 consistent monthly payments.
3-year personal loan – A personal loan with a 3 year maturity and fixed rate. 36 set monthly payments for principal and interest.

Adjustable Rate vs Fixed Rate Loans

Adjustable rate loans differ from fixed rate loans in some key ways:

The interest rate fluctuates over time based on an index like the prime rate. This causes monthly payments to change.
Interest rate caps may limit rate increases to control payment shock.
Payments are recalculated periodically as the rate changes.
ARMs often offer lower initial rates compared to fixed rate loans.
ARM rates may start lower but ultimately exceed fixed rates over the long run.
ARMs have interest rate uncertainty making budgeting more difficult.

Should I Get a Fixed or Adjustable Rate Loan?

Choosing between a fixed and adjustable rate loan depends on your financial situation and objectives:

If you value predictable payments, fixed rates provide certainty.
ARMs offer lower initial rates for short-term savings.
Fixed rates protect against rising interest rate environments.
ARMs allow you to take advantage if rates fall.
Consider how long you plan to keep the loan. ARMs with short terms may work for some.
Weigh the stability of fixed payments against potential ARM savings.

Tips for Getting the Best Fixed Rate Loan

Here are some tips to get the lowest fixed rate when financing:

Check your credit – Good credit means better loan terms. Pay down balances and correct any errors.
Compare loan offers – Get rate quotes from multiple lenders to find the best deal.
Consider shorter terms – Shorter loan maturity means lower interest rates in most cases.
Make a larger down payment – Larger down payments reduce risk for lenders allowing lower rates.
Pay discount points – Paying points upfront can buy down the interest rate.
Lock the rate – Lock in a rate as early as possible to avoid volatility.
Review closing costs – Compare full loan costs, not just interest rates.

Alternatives to Fixed Rate Loans

Some alternatives to traditional fixed rate loans include:

Adjustable Rate Mortgages – Lower initial rates with fluctuating payments as rates change.
Interest-Only Loans – Only pay interest for a set period before principal repayment begins.
Balloon Loans – Smaller payments but a large lump-sum payment due at maturity.
Bi-Weekly Loans – Loans with payments every two weeks to pay the loan faster.
Zero-Interest Loans – Special financing offers with 0% interest for a limited time.

Key Takeaways on Fixed Rate Loan Abbreviations

FRM, FRAL, SFRSL, and FRPL are common abbreviations for fixed rate mortgages, auto loans, student loans and personal loans.
Fixed rate loans offer predictable payments and protection from rising interest rates.
ARMs tend to have lower initial rates but variable payments as rates adjust.
Check your credit, compare loan offers, and lock in rates early to get the best fixed rate deal.

Understanding the abbreviations and features of fixed rate loans empowers you to make informed financing decisions and get the best loan terms. Looking at the pros and cons and comparing all your options ensures you make the right borrowing choice for your needs.

Mortgage Acronyms About Your Rate

Annual Percentage Rate (APR): The APR tells you the annual cost of borrowing money based on your loan amount, interest rate, and certain other fees. APR is different from the interest rate because it allows you to compare the true costs from several lenders directly to help you find the best deal.
LE (Loan Estimate): This is a federally required document you should receive from a lender within three days of submitting your completed loan application. A loan estimate provides the details of your loan, and the estimates of the costs you will pay at closing.
LT (Loan Term): The term indicates how long you’ll be making payments on the loan. Two popular term choices are 15-year and 30-year.
P&I (Principal and Interest): P&I is the portion of your monthly mortgage payment that goes toward paying off the money you borrowed to buy your home (the principal loan amount financed), and the amount of interest due each payment period. For most homeowners, P&I will make up the majority of your monthly mortgage payment.
PITI (Principal, Interest, Taxes, and Insurance): Your total mortgage payment each month will usually include principal, interest, taxes, and insurance if you escrow your taxes and insurance. You can use one of our payment calculator tools to gain a more complete picture of estimated monthly costs.
PMI (Private Mortgage Insurance): PMI is an insurance that protects lenders from losses if you are unable to pay your mortgage. It is required for homebuyers using a conventional loan who make a down payment of less than 20% of the home’s purchase price (appraised home value). If you cannot put 20% down, you can still avoid paying PMI by using our Home Equity Advantage LoanSM (a second mortgage option). Lenders may not require a down payment or PMI for a VA Home Loan — however, VA Home Loans have funding fees. In some cases, borrowers may be exempt from paying a VA Funding Fee if they are Disabled Veterans. Your lender can help you determine any applicable fees and costs associated with your mortgage.

Mortgage Acronyms About Your Application

DTI (Debt-to-Income): This ratio is the percentage of your income that goes toward paying your monthly debt, which is calculated by dividing your monthly debt obligations by your monthly gross income. Lenders typically require your DTI to be below a specified level for you to qualify for a mortgage. Higher DTIs could mean you’ll pay more interest, or you may not qualify for a loan.
LOX (Letter of Explanation): These are short letters you may be asked to provide to a lender answering questions that may arise during underwriting. It covers common questions such as why your income has changed, your rental history, or any late payments on your credit report.
LTV (Loan-to-Value): This ratio is calculated by dividing the loan amount by the home’s purchase price if you are buying a home, or the current home value if you’re refinancing.

Fixed-Rate Mortgage Loan

FAQ

What is another name for a fixed-rate loan?

In a fixed-rate loan (also called a term loan), the interest rate stays the same for the loan’s entire term. For example, you could have a loan with a 15-year amortization and a five-year term. During that five-year term, the interest rate would be “locked in.”

What is the abbreviation for a fixed-rate mortgage?

A fixed-rate mortgage or FRM is the inverse of an ARM. The interest rate on an ARM can change on a particular schedule depending on current rates. But the interest rate on an FRM will be the same throughout the loan’s term. With an FRM, your mortgage payment will remain constant for the life of your loan.

What does lox stand for in a mortgage?

A letter of explanation (LOX) is an opportunity for you to explain why there’s an issue with your mortgage application. For example, you might write a LOX to explain why your income has changed significantly or to discuss why your credit report shows a late payment.

What is the term of a fixed loan?

A fixed rate loan is a loan that has a fixed interest rate and therefore fixed loan repayments. The time period of these loans can vary, but you can usually “lock in” your repayments for between 1-5 years. Although the fixed rate period may be 3 years, the total length of the loan itself may be 25 or 30 years.

What is a fixed-rate home loan?

Fixed-rate home loans are the backbone of the mortgage industry for a lot of good reasons. The main benefit of a fixed-rate mortgage is that your monthly mortgage payment – the amount you pay toward your mortgage principal and interest – will remain the same throughout the life of the loan.

What are the most common loan terms for fixed-rate mortgages?

The most common loan terms for fixed-rate mortgages are 30 and 15 years. Each mortgage term has its pros and cons. 30-year fixed-rate mortgages are the most popular home loan option for borrowers. You keep monthly payments nice and low by choosing a lengthy loan term, even with a slightly higher interest rate.

What is a fixed interest rate on a mortgage?

When getting a mortgage, you can choose between a fixed interest rate and an adjustable interest rate. A fixed rate on a mortgage will stay the same throughout the life of the loan regardless of the housing market and economy.

What is the borrowing term on a fixed-rate mortgage?

The borrowing term on a fixed-rate mortgage most often consists of 15, 20, and 30-year maturities. The interest rate on a loan, or the cost of borrowing, is priced by lenders to reflect the riskiness of providing capital to a particular borrower.