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. Refinance Wave

    A situation where a large amount of mortgage refinancing occurs ...
  3. Alternative Mortgage Transaction ...

    An act from 1982 that over-rode many state laws that prevented ...
  4. Second Mortgage

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

    A company, individual or institution that originates mortgages. ...
  6. Mortgage Originator

    A mortgage originator is an institution or individual that works ...
Related Articles
  1. Insights

    How Interest Rates Affect the Housing Market

    Understand how rate changes can affect home prices and learn how you can keep up.
  2. Personal Finance

    Millennials Guide: How to Pick the Right Mortgage

    Here’s help in finding the perfect, affordable loan for that home you have been dreaming about.
  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. Personal Finance

    Finding the Best Mortgage Rates in 2017

    As home-buying technology has progressed, the process of finding the best mortgages rates can all be done online. Here's how:
  5. Personal Finance

    5 Things You Shouldn't Tell Your Mortgage Broker

    Applying for a mortgage can be a strenuous process. Here are five things to avoid doing when meeting with your mortgage broker.
  6. Personal Finance

    Now's a Terrific Time to Buy (or Refinance) a Home

    If you are looking to make a purchase or do a refi, you will benefit from continuing low interest rates – that could dip even lower.
  7. Personal Finance

    ARMed And Dangerous

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

    Behind the Scenes of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
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. What are the pros and cons of a simple-interest mortgage?

    Learn the difference between a simple interest mortgage and a standard mortgage, along with their relative advantages and ... Read Answer >>
  3. When Do Mortgage Payments Usually Start?

    Discover when your first mortgage payment is due and how it differs from rent. Learn about the closing process and why you ... Read Answer >>
Trading Center