What Is a Fixed-Rate Mortgage? | Financial Terms

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A fixed rate mortgage is a mortgage where your interest rate and your monthly payment are never going to change. And that is really important. So for thirty years, and that is the most common term on a mortgage, you know exactly what your interest rate payment is and you know exactly what your monthly payment is. And so it tends to be the most conservative type of loan because nothing about it can change. As long as you make your payments as agreed that property is paid for in full after the term of the loan. So that can be contrasted with some mortgages that are adjustable rate mortgages where the rates and the payments can fluctuate quite a bit. Fixed rate mortgages are the most appropriate loans for most types of borrowers. But there are some drawbacks. Because it is a little bit more conservative and because you know nothing is going to change sometimes the mortgage rates are a little bit higher on a fixed rate mortgage than they might be on other types of mortgages. But if I am an individual and I am thinking about buying a home and staying there a long time, a fixed rate mortgage is the way to go because I don't want to be worried about what could happen. How do I know where interest rates are going to be five years from now? And if interest rates went much higher and I didn't have a fixed rate mortgage, I might be stuck paying a lot more each month for my home and that payment may or may not be affordable. And so that is too much risk for most people to take on. So, again, a fixed rate mortgage is great. It tends to be more conservative, because you have certainty. You know your interest rate and your monthly payment are never going to change.