What is a 'Fixed-Rate Mortgage'

A fixed-rate mortgage is a mortgage that has a fixed interest rate for the entire term of the loan. The distinguishing factor of a fixed-rate mortgage is that the interest rate over every time period of the mortgage is known at the time the mortgage is originated. The benefit of a fixed-rate mortgage is that the homeowner will not have to contend with varying loan payment amounts that fluctuate with interest rate movements.

BREAKING DOWN 'Fixed-Rate Mortgage'

There is typically a tradeoff when it comes to choosing a mortgage between risk and reward, or between an adjustable-rate mortgage and a fixed-rate mortgage. Depending on market conditions (the shape of the yield curve), an adjustable-rate mortgage might have a large initial payment advantage over a fixed-rate mortgage. However, if such a scenario exists, there is a probability that the payments on the adjustable-rate mortgage will rise over time. Mortgage borrowers need to understand and measure risks when deciding between an adjustable-rate and fixed-rate mortgage.

RELATED TERMS
  1. Mortgage

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

    A type of subordinate mortgage made while an original mortgage ...
  3. Mortgage Banker

    A company, individual or institution that originates mortgages. ...
  4. Primary Mortgage Market

    The market where borrowers and mortgage originators come together ...
  5. Hybrid ARM

    A hybrid adjustable-rate mortgage blends the characteristics ...
  6. Third-Party Mortgage Originator

    1. A person or company involved in the process of marketing mortgages ...
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

    Shopping for a Mortgage? Use This Tool First

    As home-buying technology has progressed, the process of finding the best mortgage rates for 2016 can all be done online.
  3. Personal Finance

    Shopping for a Mortgage in 2017? Use This Tool First

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2017 can all be done online.
  4. Retirement

    Best Mortgage Companies Friendly to Retirees

    If you’re no longer in the workforce and need a loan to buy a home, which companies are the most welcoming? Plus, good news about qualifying for a loan.
  5. Personal Finance

    ARMed And Dangerous

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

    When (And When Not) to Refinance Your Mortgage

    There are both good and bad reasons to refinance. Learn more about both here.
  7. Personal Finance

    Behind the Scenes of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  8. Insurance

    How to Outsmart Private Mortgage Insurance

    It's possible to use a second mortgage to avoid this fee, but is it in your best interest?
RELATED FAQS
  1. What are the different types of subprime mortgages?

    Clarify your understanding of subprime mortgages. Learn about the different types, how they work and when they might be beneficial. Read Answer >>
  2. If my mortgage lender goes bankrupt, do I still have to pay my mortgage?

    Yes, if your mortgage lender goes bankrupt you do still need to pay your mortgage obligation. Sorry to disappoint, but there ... Read Answer >>
Trading Center