A fixed-rate mortgage (FRM) is a fully-amortizing mortgage loan.

This means the interest rate and payment remain the same for the duration of the loan. 15-year and 30-year fixed-rate mortgages are the most common, although other terms are often available (from 10 to 50 years).

Advantages

  • Rates and payments remain constant
  • Loan is paid off in full at end of term
  • Ability to budget based on a fixed cost
  • Loan will not adjust upward with the market (even if rates hit 20%)
  • Simple to understand
  • Great for first-time home buyers
  • Significant property interest write-off during the early years

Disadvantages

  • Usually more expensive than adjustable rate mortgages (ARMs)
  • Rate will not adjust downward with the market (even if rates hit 1%)
  • You must refinance to take advantage of lower rates
  • The largest portion of the payment goes toward interest during the early years

 

Interest and Equity

In general, the longer the term of the fixed-rate mortgage, the more interest you will pay over the life of the loan. Longer terms usually come with higher interest rates, but lower monthly payments. The shorter the repayment term is, the lower the interest rate will be and the faster you’ll pay off and build equity in your home, though your monthly payments will general be higher.

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