What Is a Fixed-Rate Mortgage?

Banker and client discussing a fixed-rate mortgage.

By definition, a fixed-rate mortgage is a home loan where your interest rate gets locked in from the start and never changes. As a result, the principal and interest charges in your monthly payment remain stable over the life of the loan. There are no surprises with a fixed-rate mortgage.

How Does a Fixed-Rate Mortgage Work?

The interest rates that mortgage lenders offer are always changing. Getting a fixed-rate mortgage allows you to keep paying the same interest rate even if market conditions fluctuate. If you get an adjustable-rate mortgage, then you could see your monthly payment increase if interest rates go up.

Of course, the rates you can get also depend on your financial situation and whether lenders believe you’ll reliably repay your debts. They’ll look at things like your credit score, the size of your down payment, and the price of the home you want to buy.

Still, taking out a mortgage when interest rates are low can help you save a considerable amount of money over time.

Your loan term makes a difference

Another factor that influences your interest rate, the monthly payment on your mortgage, and the total amount of interest you’ll pay is your loan term. That’s the number of years it will take for you to pay off your mortgage. While lenders can offer fixed-rate mortgages with various repayment periods, the two most common loan terms are 30 years and 15 years.

In general, the longer your loan term, the more interest you’ll have to pay. With shorter loan terms, you’ll pay less interest overall, but your monthly payments are higher.

To illustrate the differences in costs, let’s consider an example with a $375,000 home and 20% down payment:

Fixed-Rate Mortgage Cost Comparison

Loan amountInterest rateLoan termMonthly paymentTotal interest paid
$300,0004%30 years$1,432$215,609
$300,0004%15 years$2,219$99,431
$300,0005%30 years$1,610$279,767
$300,0005%15 years$2,372$127,029
Note: This table is intended to serve as an example of how the interest rate and loan term on a mortgage can affect the monthly payment and total interest paid. It is not intended to be used for financial advice, or to calculate the exact costs of a specific mortgage. These sample calculations do not include homeowners insurance premiums or property taxes. They were last verified on July 1, 2022.

Pros and Cons of a Fixed-Rate Mortgage

A few benefits of having a fixed-rate mortgage include:

  • You can hold on to a better rate. If interest rates start going up and you have a fixed-rate mortgage, you don’t need to worry about paying more for your loan.
  • More financial stability. Since your monthly principal and interest payments won’t change with a fixed-rate mortgage, you’ll know from the start what you’ll owe each month — making it easier to budget for the long term.
  • Less risk. Knowing what your monthly payment will be over the entire loan term means that you’re better able to determine whether you can afford the mortgage.

It’s also important to understand the downsides of having a fixed-rate mortgage, such as:

  • A higher initial rate. Fixed-rate mortgages often start off with a more expensive interest rate compared to adjustable-rate mortgages.
  • You can get stuck with a bad rate. If you take out a mortgage when interest rates are especially high, then you’ll continue to pay that rate if they drop — unless you refinance.

When Would It Be Better To Choose a Fixed-Rate Mortgage?

A fixed-rate mortgage can be a great choice if you’re looking for certainty in your monthly payments and planning to live in the same place for a long time. Locking in your rate also can be a savvy move when market interest rates are low. That way, you’ll continue to benefit from that lower rate even if the market changes.

Fixed-Rate Mortgage FAQ

Here are the answers to some frequently asked questions about fixed-rate mortgages.

Can you pay off a fixed-rate loan early?

Some lenders charge a fee known as a prepayment penalty if you pay off all or a large amount of your mortgage early. You likely won’t be charged this penalty if you’re just making small extra payments toward your principal. However, it’s still a good idea to check with your mortgage lender before trying to get ahead on your payments.

What does it mean to have a 30-year fixed-rate mortgage?

A 30-year fixed-rate mortgage is a home loan that you pay off with regular monthly payments over the course of 30 years. With this type of mortgage, your interest rate never changes, so your principal and interest payments will be the same each month. Compared to a 15-year fixed-rate mortgage, a 30-year fixed-rate mortgage typically has lower monthly payments but a higher interest rate and greater total cost.

Can you switch from an adjustable rate to a fixed rate?

If qualified, you can switch between the different types of interest rates by refinancing.

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