The term "fixed-rate mortgage" refers to a home loan that has a fixed interest rate for the entire term of the loan. This means the mortgage carries a constant interest rate from beginning to end. Fixed-rate mortgages are popular products for consumers who want to know how much they'll pay every month.
There are several kinds of mortgage products available on the market, but they boil down into two basic categories: variable loans and fixed-rate loans. With variable-rate loans, the interest rate is set above a certain benchmark and then fluctuates—changing at certain periods.
Fixed-rate mortgages, on the other hand, carry the same interest rate throughout the entire length of the loan. Unlike variable and adjustable-rate mortgages, fixed-rate mortgages don't fluctuate with the market. So the interest rate in a fixed-rate mortgage stays the same regardless of where interest rates go—up or down.
Adjustable-rate mortgages (ARMs) are something of a hybrid between fixed and variable loans. An initial interest rate is fixed for a period of time—usually several years. After that, the interest rate resets periodically, at annual or even monthly intervals.
Most mortgagors who purchase a home for the long term end up locking in an interest rate with a fixed mortgage. They prefer these mortgage products because they're more predictable. In short, borrowers know how much they'll be expected to pay each month, so there are no surprises.
The mortgage term is basically the lifespan of the loan—that is, how long you have to make payments on it.
In the U.S., terms can range anywhere between 10 and 30 years for fixed-rate mortgages: 10, 15, 20, and 30 years are the usual increments. Of all the term options, 30 years is the most popular, followed by 15 years.
For more information please contact one of our Consumer Real Estate Lenders.