What Is a Fixed-Rate Mortgage?
Fixed-Rate Loans – The term “fixed-rate mortgage” refers to a home loan that has a fixed interest rate for the entire term of the loan. This means that the mortgage carries a constant interest rate from beginning to end. Fixed-rate mortgages are popular products for consumers who want to know how much they’ll pay every month.
KEY TAKEAWAYS – Fixed-Rate Loans
- A fixed-rate mortgage is a home loan with a fixed interest rate for the entire term of the loan.
- Once locked in, the interest rate does not fluctuate with market conditions.
- Borrowers who want predictability and/or who tend to hold property for the long term tend to prefer fixed-rate mortgages.
- Most fixed-rate mortgages are amortized loans.
- In contrast to fixed-rate mortgages are adjustable-rate mortgages, whose interest rates change over the course of the loan.
How a Fixed-Rate Mortgage Works – Fixed-Rate Loans
Several kinds of mortgage products are available on the market, but they boil down to two basic categories: variable-rate loans and fixed-rate loans. With variable-rate loans, the interest rate is set above a certain benchmark and then fluctuates changing at certain periods.
Fixed-rate mortgages, on the other hand, carry the same interest rate throughout the entire length of the loan. Unlike variable- and adjustable-rate mortgages, fixed-rate mortgages don’t fluctuate with the market. So the interest rate in a fixed-rate mortgage stays the same regardless of where interest rates go—up or down.
Most mortgagors who purchase a home for the long term end up locking in an interest rate with a fixed-rate mortgage. They prefer these mortgage products because they’re more predictable. In short, borrowers know how much they’ll be expected to pay each month, so there are no surprises.