Refinancing into a FHA fixed rate mortgage, how it functions; the interest rate stays the same during the life of the loan period, the common terms are 15 year and 30 year mortgages. The advantages of a fixed rate mortgage is that your monthly payments stay the same for the life of the loan.

Your escrow payments; home owners insurance, property tax are separate from your fixed rate payment of principle and interest; they would be subject to increasing. Fixed rate reflects only your principle and interest this will always stay the same.

A fixed rate mortgage will cost you more than a adjustable or interest only. But what is better about the fixed rate is you will be paying into principle not so with interest only. You would also be building equity in your property not so with a interest only. This makes the fixed rate refinancing more attractive.

With a fixed rate mortgage will have a higher starting interest rate, this does not indicate that this is a worse form of borrowing compared to the adjustable rate mortgages. If interest rates rise, the ARM cost will be higher than the Fixed Rate will remain the same.

A fixed rate refinance may also offer the ability to prepay your principal early without penalty. Early prepayments of part of the principal will reduce the total cost of the loan, and will shorten the amount of time needed to pay off the loan. There by costing you less in the overall amount of interest you would have paid had you made payments for the scheduled life of the loan.