Fixed Interest Rate

AAA

DEFINITION of 'Fixed Interest Rate'

An interest rate on a liability, such as a loan or mortgage, that remains fixed either for the entire term of the loan or for part of this term. A fixed interest rate may be attractive to a borrower who feels that the interest rate might rise over the term of the loan, which would increase his or her interest expense. A fixed interest rate, therefore, avoids the interest rate risk that comes with a floating or variable interest rate, wherein the interest rate payable on a debt obligation depends on a benchmark interest rate or index.

INVESTOPEDIA EXPLAINS 'Fixed Interest Rate'

While a home buyer in the United States can obtain a mortgage with a fixed interest rate for the full 30-year term of his or her mortgage, in Canada, a home buyer can only "lock in" or obtain a fixed interest rate for a maximum of five to seven years of a 25-year mortgage.

Borrowers are more likely to opt for fixed interest rates during periods of low interest rates, since the opportunity cost, if interest rates go lower, is still much less than during periods of high interest rates.

RELATED TERMS
  1. Gearing

    The level of a company’s debt related to its equity capital, ...
  2. Cox-Ingersoll-Ross Model - CIR

    A mathematical formula used to model interest rate movements ...
  3. Auction Rate Bond - ARB

    A debt security with an adjustable interest rate and fixed term ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Variable Interest Rate

    An interest rate on a loan or security that fluctuates over time, ...
  6. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
RELATED FAQS
  1. How do I use the rule of 72 to calculate continuous compounding?

    The rule of 72 is a mathematical shortcut used to predict when a population, investment or other growing category will double ... Read Full Answer >>
  2. How do I adjust the rule of 72 for higher accuracy?

    The rule of 72 refers to a time value of money formula that investors use to calculate how quickly an investment will double ... Read Full Answer >>
  3. Do lenders offer floating APRs?

    There are floating APRs. APR stands for annual percentage rate, and it must be provided when advertising for credit, as it's ... Read Full Answer >>
  4. 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 Full Answer >>
  5. How do you calculate GDP with the income approach?

    The income approach to measuring gross domestic product (GDP) is based on the accounting reality that all expenditures in ... Read Full Answer >>
  6. What are the goals of a "dove" Federal Reserve head?

    The goals of a dovish Federal Reserve head are to maintain low interest rates, stimulate the overall economy, decrease the ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Choose Your Monthly Mortgage Payments

    Exotic mortgages allow you to decide how much to pay. Find out how much they really cost.
  2. Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  3. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  4. Economics

    How Interest Rates Affect The Housing Market

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

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  6. Credit & Loans

    College Loans: Private Vs. Federal

    Not all student loans are the same. Know what you're getting into before signing on the dotted line.
  7. Credit & Loans

    How HELOCs Can Hurt You

    A home equity line of credit is a convenient way to borrow money. But, there are things to be cautious about before you get into trouble.
  8. Retirement

    Understanding Credit Card Interest

    Paying these rates can impact your disposable income and your investment returns.
  9. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  10. Home & Auto

    When (And When Not) To Refinance Your Mortgage

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

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!