Fixed-Rate Mortgages

A fixed-rate mortgage locks your interest rate at closing and keeps it there for the entire life of the loan. The principal-and-interest portion of your payment is calculated once and does not change. Your total monthly bill can still move over time as property taxes and homeowners insurance are reassessed through escrow, but the loan portion itself stays put, which is what most people mean when they say their payment is fixed.

The common terms are 15, 20, and 30 years, and the choice between them is a tradeoff between monthly cost and total interest. A longer term spreads the balance over more payments, so each one is smaller. A shorter term means a larger monthly payment but the balance is repaid faster and less interest accrues across the life of the loan. Twenty years sits in the middle and is often overlooked by buyers who assume the decision is only 15 or 30.

Fixed-rate financing tends to suit buyers who plan to stay in the home for years and want a payment they can budget around without watching rate markets. An adjustable-rate mortgage takes a different approach. It starts with a rate fixed for an introductory period and then adjusts on a schedule tied to an index, which can work well for borrowers who expect to sell or refinance before the adjustments begin. Neither structure is better in the abstract; they answer different questions about how long you expect to hold the loan and how much payment variability you are comfortable with.