What is a Fixed-rate Mortgage?
A fixed-rate mortgage has an interest rate that will remain the same over the mortgage term. Both the borrower and the lender will agree on the interest rate before the mortgage loan is disbursed to the borrower.
Why is this term important?
Understanding fixed-rate mortgages is important when choosing which mortgage product is best for a homeowner’s unique situation. If a homeowner chooses a fixed-rate mortgage their interest rate will be secure, protecting them from rising interest rates. Having a fixed-rate mortgage also makes monthly payments more predictable and makes budgeting easier.
Here is an example:
Let’s say a homeowner has a $500,000 mortgage with a 5% interest rate for a 5-year term. If the homeowner chooses a fixed-rate mortgage, instead of a variable-rate mortgage, their monthly payments will remain at $2,668.45. Since they’re fixed, this interest rate and monthly payment will not change over the course of the mortgage term.