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About Fixed-Rate Mortgages

About Fixed-Rate Mortgages
Daniel Cohen
UpdatedOct 20, 2010
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    3 min read
Key Takeaways:
  • Monthly payments on fixed-rate mortgages remain constant.
  • In exchange for the security of a fixed-rate, you are likely to pay more that you would for an adjustable-rate mortgage.
  • A fixed-rate mortgage is the most common form of home loan.

The Pros and Cons of a Fixed-Rate Mortgage

What is a fixed-rate mortgage?

Fixed-rate mortgages are the most common type of mortgage used by Americans. A fixed-rate mortgage involves borrowing a sum of money secured by the value of your home and then paying it back with equal monthly payments over the 'term' of the loan, which can range from 10 to 40 years. Fifteen- and 30-year mortgages are the most common types of fixed-rate home loans in the market.

How does a fixed-rate home loan work?

Fixed-rate mortgages are straightforward: based on an initial interest rate, a monthly payment is calculated such that by the end of the term the amount owed to the lender is zero. An identical payment is made each month. Each payment consists of an interest payment and a repayment of a portion of the remaining loan balance. As the loan balance goes down a little each month, the proportion of the fixed payment that goes to interest declines, and the proportion going to loan repayment increases. You can see this in the following chart:

Thus, your mortgage balance declines slowly at first, but shrinks increasingly rapidly over time.

What are the advantages of a fixed-rate mortgage?

A fixed-rate mortgage provides the security of knowing what your monthly payments are going to be for the whole term of the mortgage, even if the country's interest rates rise over time.

In addition, as the most common type of mortgage available, rates remain very competitive and, so long as you qualify, you will always be able to find very competitive mortgage refinance rates and home purchase loan rates.

What are the disadvantages of a fixed-rate mortgage?

You pay for this security, however, because the mortgage rate and monthly payments are higher than for the more risky adjustable-rate mortgages (ARMs).

If rates fall, you also won't enjoy the benefit of falling mortgage rates and lower payments as do the holders of ARMs. But not to worry — it may be a good time to refinance!

15 years or 30 years?

If your #1 priority is to pay the least interest over time for your loan and to be debt free as quickly as possible, a 15-year fixed mortgage can make great sense. These loans typically have significantly lower interest rates than 30-year loans and, of course, are paid off in half the time. But these benefits are far from painless — the monthly payment on a 15-year fixed loan can be a lot larger.

If your priority is a manageable monthly payment while maintaining the security of a fixed rate, a 30-year fixed-rate mortgage is a great choice. You will pay more over time and take 30 years to get your home loan paid off, but you will have a manageable payment and peace of mind.

What do I do if rates fall?

If rates fall, you are also potentially left paying more for your mortgage than you need to. Fortunately, if rates fall far enough, it is straightforward to refinance. If you have a loan you are considering refinancing, check out our 'Should I Refinance' mortgage calculator to see whether now is a good time.


BBrad Stroh, Jul, 2014
MMartin, Jan, 2012
Some people are advising me that I am foolish to consider an adjustable rate mortgage. I plan on moving in five years, once my youngest child finishes high school. Doesn't it make sense to look into and adjustable mortgage? I can get a lower rate on a 5-year ARM than on a 30-year fixed.
BBill, Jan, 2012
Fixed rate mortgages are vastly more popular than adjustable rate mortgages. According to Freddie Mac, 96% of the refinance loans from the last quarter were for fixed rate mortgages, compared to only 4% for ARMs.

Still, there is no one-sized-fits-all mortgage. From what you describe, it is wise to consider an ARM. Look at how high your mortgage can adjust, if your plans to move take longer than you currently plan for them to take.
NNations, Jan, 2012
In any case if you need advice on what to choose in regards to fixed rate or other you should contact a specialist. Most financial advisors or mortgage companies will give you that advice. It's usually free and without any obligations.
bbarbara, Mar, 2011
i need help i got messed up with a company that lied to me about my payments
BBill, Mar, 2011
If a creditor mislead you regarding the amount due on your monthly payments, you may have a cause of action (legal reason to file a lawsuit) against the creditor. Consult with a lawyer in your state who has experience in civil litigation or consumer law. If you cannot afford a lawyer, call your county bar association. Ask for the name of the organization in your area that provides no-cost legal services to people with low or no income. Make an appointment with that organization, and bring all of the documents you have to your meeting. The more information you bring, the more likely it is for the lawyer you meet to help you. The lawyer you meet will review your documents, ask you questions, and advise you accordingly.
AAutumn, Feb, 2011
I have requested to have someone contact me or my husband and have not heard anything as yet. I have been trying for the past month. please send an e mail or call. we have our home mortgage thru you and would like to refinance. your help in this would be greatly appreciatedthanksAutumn Gordon
BBill, Feb, 2011 is an information-only Web site and does not provide home loans, refinances, reverse mortgages, or home equity lines of credit. We do answer questions about home loans, and refer readers to lenders who provide mortgages, but we are not involved in the lending process, and are not a mortgage servicer. Who is servicing your mortgage? Perhaps we can help you find the correct contact information.
JJon, Dec, 2010
Nice overview - thanks