What are fixed-rate mortgages, and how do they work?

The cost of a home and mortgage rates fluctuate with the seasons, but a fixed-rate mortgage is one thing homeowners can depend on.

What is the definition of a fixed-rate mortgage?

Fixed-rate mortgages have fixed interest rates that stay the same throughout the life of the loan. As a result, your monthly amount of principal and interest will remain consistent throughout time.

(Note that your mortgage payments may change if you use the Escrow account to pay your homeowner’s taxes or property taxes insurance.)

Because of their dependability and security, fixed-rate mortgages are among the most popular types of financing.

Fixed-rate mortgages, commonly known as ARMs, typically have higher interest rates than variable-rate mortgages.

However, they provide reduced interest rates that are fixed for a limited time, usually three to seven years, before being reset. After then, rates (as well as your monthly payment) might fluctuate during the loan’s term, although most ARMs have a cap.

What is the repayment period for an interest-only loan?

The amount of time you have to repay the loan is referred to as the mortgage term. Fixed-rate mortgages are typically available in 30-year or 15-year periods. The advantages and disadvantages of each type:



  • The monthly payment is cheaper for any loan amount than for mortgages with a shorter term.


  • Compared to a previous term, the amount of interest you must pay is higher throughout the loan.
  • The interest rate has increased.



Throughout the life of the loan, the amount of interest you pay is smaller.

The rate of interest is lower.


  • The monthly installments will be more significant if the loan is large.

Many consumers prefer a 30-year fixed-rate mortgage to a 15-year fixed-rate mortgage since the monthly payments are cheaper for the same amount. In addition, a longer fixed-term loan will allow you to acquire more loans.

This might free up money each month for other financial goals, such as retirement savings, emergency reserves, or college tuition costs for your child.

A fixed 15-year loan is an ideal option for those concerned about their cash flow and who want to sell their home quickly and for a lesser price.

However, because you’ll have to pay more in principle, your monthly payments will be higher, so do the arithmetic and talk to your mortgage provider about your options to be sure you can make the payments without sacrificing other financial goals.

Different principal amounts, similar installments

Learn about Jill, a first-time homebuyer on a limited budget. Jill believes she can afford to pay about $1,000 per month in interest and principle. Jill’s lender provides a 30-year fixed loan with a 3% interest rate or a 15-year fixed loan with a 2.5 percent interest rate.

$1,012 monthly interest and principal for a $240,000 loan with a 30-year fixed rate of 3.5 percent.

A 15-year fixed-rate loan at a rate of 2.5 percent. The principal plus interest on a 152,000-dollar loan is $1,014 each month.

Jill can borrow $88,000 over a 30-year fixed term to cover the cost of a monthly loan. On the other hand, Jill will have to pay a higher interest rate (keep running).

Principal amounts are the same, but the interest rates are not

A loan of $240,000

30-year fixed-rate with a 3% interest rate: $12422,266 Total cost of interest throughout the life of the loan

15-year fixed loan at 2.5 percent interest for $48,053 over 15 years, saving $76,213 over the life of the loan.

Examine the Costs

Use our mortgage calculator to figure out how much a home loan’s principal and interest will cost. For individuals with excellent credit, the loan providers provide the best prices and terms.