A “fixed-rate mortgage” is a home loan with an interest rate that stays the same over the life of the loan. This means that the interest rate on the loan stays the same from the beginning to the end. People who want to know how much they’ll pay every month often choose fixed-rate mortgages.

## KEY TAKEAWAYS

A fixed-rate mortgage is a loan for a home where the interest rate stays the same for the whole loan period.

Once the interest rate is locked in, it doesn’t change with the market.

Fixed-rate mortgages are usually best for people who want to know what their payments will be and/or who plan to keep their homes for a long time.

Most loans with a set rate are amortized loans.

Adjustable-rate mortgages are different from fixed-rate mortgages because the interest rate changes over the life of the loan.

## How a loan with a fixed rate works

There are many different types of mortgages on the market, but they can be broken down into two main groups: variable-rate loans and fixed-rate loans. The interest rate on a variable-rate loan is set above a certain standard and then changes at certain times.

The interest rate on a fixed-rate mortgage, on the other hand, stays the same for the whole length of the loan. Fixed-rate mortgages don’t change with the market like variable-rate and adjustable-rate mortgages do. So, with a fixed-rate mortgage, the interest rate stays the same whether interest rates go up or down.

Adjustable-rate mortgages (ARMs) are kind of a mix of loans with set rates and loans with rates that change over time. The interest rate on a loan is set for a certain amount of time, usually a few years. After that, the interest rate changes every year or sometimes every month.

Most people who buy a home with the intention of living there for a long time end up with a fixed-rate mortgage. They like these credit products because they know what to expect from them. In short, people who borrow money know how much they have to pay back each month, so there are no shocks.

## Loans with a fixed interest rate

The mortgage term is essentially the length of time you have to make payments on the loan.

Fixed-rate mortgages in the U.S. can last anywhere from 10 to 30 years; 10, 15, 20, and 30 years are the most common amounts. The most common time is 30 years, and the next most common is 15 years.

Nearly 90% of homeowners in the U.S. today choose a 30-year fixed-rate mortgage.

## How to Figure Out the Cost of a Fixed-Rate Mortgage

With a fixed-rate mortgage, the amount of interest a borrower pays depends on how long the loan is repaid, or how long the payments are spread out over. The interest rate on your mortgage and the amount of your monthly payments don’t change. What does change is how your money is used. At the beginning of paying off a mortgage, more of the payment goes toward interest.

As time goes on, more of the payment goes toward the loan balance.

So, the mortgage term is used to figure out how much a mortgage will cost. As a general rule, the longer the loan time, the more interest you pay. When it comes to interest, someone with a 15-year term will pay less than someone with a 30-year fixed-rate mortgage.

It can be hard to figure out the numbers: A mortgage tool is the best way to find out exactly how much fixed-rate mortgage costs or to compare two different mortgages.

## Things to think about

Most loans that pay off over time have fixed interest rates, but some loans that don’t pay off over time also have set rates.

### Loans With Payments

Fixed-rate mortgage loans that are paid off over time are one of the most popular types of mortgages that lenders give. The interest rate on these loans stays the same over the life of the loan, and the payments are made in equal amounts every month. A base repayment plan needs to be made by the lender for a fixed-rate amortizing mortgage loan.

When a loan is given out, you can easily figure out a repayment plan if the interest rate is set. This is because with a fixed-rate mortgage, the interest rate doesn’t change with each payment. This makes it possible for the lender to set up a payment plan with consistent amounts over the life of the loan.

With each payment, the user pays more capital and less interest as the loan gets closer to being paid off. This is different from a variable-rate mortgage, in which the user has to deal with loan payments that change as the interest rate changes.

### Loans without payments

Fixed-rate mortgages can also be given out as loans that aren’t paid back over time. Most of the time, these loans are called “balloon payment loans” or “interest-only loans.” Alternative loans with fixed interest rates can be set up in a few different ways by lenders.

A popular way to set up loans with a balloon payment is to charge the customer delayed interest every year. This means that the borrower’s yearly interest rate must be used to figure out the interest each year. The interest is then put off until the end of the loan and added to a balloon payment.

In a fixed-rate loan where only the interest is paid, the client only makes payments on the interest. Most of the time, interest on these loans is paid monthly at a set rate. Borrowers pay interest every month, but they don’t have to pay back the balance until a certain date.

### Fixed-rate mortgages vs. mortgages with rates that change over time (ARMs)

Adjustable-rate mortgages (ARMs) have both fixed-rate and variable-rate parts. They are usually given in the form of an annualized loan with regular payments over the life of the loan. They want a set interest rate for the first few years of the loan and then a flexible interest rate after that.

Since some of the rates on these loans are changeable, the repayment plans can be a little more complicated. So, buyers can expect to pay different amounts each month instead of the same amount every month with a fixed-rate loan.

People who don’t mind the uncertainty of interest rates going up and down tend to like ARMs. ARMs are also often chosen by people who know they will either refinance or won’t keep the property for a long time. Most of the time, these borrowers bet that rates will go down in the future. If rates do go down, a borrower’s interest will go down as time goes on.

### What are the pros and cons of a fixed-rate mortgage?

Fixed-rate mortgage loans have risks for both the client and the investor. Most of these risks have to do with the interest rate situation. When interest rates go up, a renter with a fixed-rate mortgage will have less risk, while an investor will have more risk.

Most people who borrow money want to lock in lower interest rates so they can save money over time. When rates go up, a borrower’s payment stays lower than it would be in the current market. On the other hand, a loan bank isn’t making as much money as it could from the higher interest rates that are currently in place. This is because it isn’t making as much money from fixed-rate mortgages, which could be making more money over time in a variable-rate scenario.

In a market where loan rates are going down, it’s the other way around. The amount that borrowers pay on their mortgages is higher than what the market would dictate. Lenders make more money on their fixed-rate mortgages than they would if they were to give out fixed-rate mortgages right now.

Borrowers can refinance their fixed-rate mortgages at the current rates if those rates are cheaper, but doing so will cost them a lot of money.