Fixed-Rate Payment

AAA

DEFINITION of 'Fixed-Rate Payment'

The amount due every period by a borrower to a lender under a fixed-rate loan. The fixed-rate loan payments will be equal amounts until the loan plus interest are paid in full. The payment amount can be calculated using the following formula:

Fixed-Rate Payment



Where:
P is the constant payment you make every period
R is the interest rate per period
N is the number of periods
Loan is the total loan amount

INVESTOPEDIA EXPLAINS 'Fixed-Rate Payment'

To calculate R, take the yearly interest rate and divide by the number of payment periods in a year. For example, if you pay monthly and your yearly interest is 5%, then your interest per period will be (0.05/12) = 0.004167 or 0.4167%.

To calculate N, take the duration of the loan in years and multiply it by the periods in a year. For example, if you have a 25-year loan that you pay monthly, the total periods will be 12 X 25 = 300.

Borrowers usually have the option of either a fixed-rate loan or a floating-rate loan. Some loans can even be interest-only, under which there are no required principal repayments.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Conventional Mortgage

    A type of mortgage in which the underlying terms and conditions ...
  3. Personal Finance

    All financial decisions and activities of an individual, this ...
  4. Prime Rate

    The interest rate that commercial banks charge their most credit-worthy ...
  5. Bi-Monthly Mortgage

    A mortgage plan where half the scheduled monthly payment is made ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. ...
Related Articles
  1. Insurance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  2. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  3. Home & Auto

    The Benefits Of Mortgage Repayment

    Buying a home may be the biggest debt you'll ever incur. Learn why you should retire it sooner, rather than later.
  4. Investing Basics

    APR and APY: Why Your Bank Hopes You Can't Tell The Difference

    Banks use these rates to entice borrowers and investors. Find out what you're really getting.
  5. Credit & Loans

    Interest-Only Mortgages: Home Free Or Homeless?

    These loans can be beneficial, but for many borrowers, they present a financial trap.
  6. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  7. Active Trading Fundamentals

    What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing can be risky.
  8. The trick isn’t to buy the stock of the San Francisco-based LendingClub — it’s to become an investor in the loans the company wants to make.
    Stock Analysis

    Investing In (And With) Lending Club

    The trick isn’t to buy the stock of the San Francisco-based LendingClub — it’s to become an investor in the loans the company wants to make.
  9. Investing Basics

    What is the difference between the gearing ratio and the debt-to-equity ratio?

    Dive deeper into gearing ratios: what are they, how are they used and why the debt to equity ratio is one of the most popular analytical gearing tools.
  10. Economics

    What is the difference between loan syndication and a consortium?

    Learn about consortiums and loan syndications, two types of multiple banking arrangements designed to finance transactions that single lenders do not handle.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center