What is a 'Fixed-Rate Payment'

A fixed-rate payment is 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

BREAKING DOWN '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. Term Loan

    A loan from a bank for a specific amount that has a specified ...
  2. Loan Constant

    An interest factor used to calculate the debt service of a loan. ...
  3. Renegotiated Loan

    The result of an agreement between a borrower and a lender to ...
  4. Loan

    The act of giving money, property or other material goods to ...
  5. Non-Amortizing Loan

    A type of loan in which payments on the principal are not made, ...
  6. Cumulative Interest

    The sum of all interest payments made on a loan over a certain ...
Related Articles
  1. Personal Finance

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  2. Personal Finance

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  3. Personal Finance

    Student Loan Debt: Is Consolidation The Answer?

    Consolidating your student loans offers convenience, but there are drawbacks.
  4. Personal Finance

    Simple Interest Loans: Do They Exist?

    Yes, they do. Here is what they are – and how to use them to your advantage.
  5. Personal Finance

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
  6. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  7. Managing Wealth

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
RELATED FAQS
  1. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >>
  2. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
Hot Definitions
  1. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  2. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Zero Day Attack

    Zero Day Attack is an attack that exploits a potentially serious software security weakness that the vendor or developer ...
  6. Effective Tax Rate

    The average rate at which an individual or corporation is taxed. The effective tax rate for individuals is the average rate ...
Trading Center