A mortgage with an interest rate that stays constant for the entire loan term, resulting in the same principal and interest payment every month.
Full Definition
A fixed-rate mortgage carries an interest rate that never changes, regardless of what happens to market rates. The most common terms are 30 years and 15 years, though 10- and 20-year options exist. Monthly principal and interest payments are identical from the first payment to the last. However, the composition changes over time — early payments are mostly interest; later payments are mostly principal. Fixed-rate mortgages provide certainty and are popular when rates are low or expected to rise. The trade-off is that initial rates are typically higher than ARM teaser rates. A 15-year fixed has a higher monthly payment than a 30-year but accumulates equity faster and costs significantly less in total interest.
Related Terms
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