Fixed-Rate Mortgage

A fixed-rate mortgage is a home loan where your interest rate stays the same for the entire loan term. Whether the term is 15, 20, or 30 years, you pay the same interest rate and the same monthly payment every single month, providing certainty and protection against rate increases.

How it works

You borrow a fixed amount at a fixed rate for a fixed term. Your monthly payment is calculated once and never changes (excluding property tax and insurance, which may increase).

Example: you borrow $240,000 at 6% for 30 years. Your monthly payment (principal + interest) is $1,439. You pay this exact amount every month for 360 months. You never worry about the rate rising to 7% or 8%.

Fixed vs. adjustable

Fixed-rate mortgage:

• Interest rate stays the same forever.
• Monthly payment is predictable.
• No rate-increase risk.
• Typically higher initial rate than ARM.

Adjustable-rate mortgage (ARM):

• Interest rate is fixed for a few years, then adjusts.
• Monthly payment can increase significantly.
• Rate-increase risk.
• Often lower initial rate (the “teaser” rate).

For most homeowners, fixed-rate is preferred because of the certainty.

Term: 15 vs. 30 years

30-year mortgage:

• Lower monthly payment (~$1,439 on $240k at 6%)
• More interest paid total (~$260,000)
• Gives flexibility to pay extra principal if desired

15-year mortgage:

• Higher monthly payment (~$1,699 on $240k at 6%)
• Less interest paid total (~$65,000)
• Forces equity building; interest savings are automatic

For most people, a 30-year mortgage is better because:

1. Lower monthly payment keeps cash available for emergencies and investing.
2. If you can afford the 15-year payment, you can pay extra on a 30-year mortgage (same effect, more flexibility).

A 15-year mortgage appeals to people who dislike debt and want forced savings through higher payments.

Interest rate and market conditions

Your mortgage rate depends on:

• Federal Reserve policy. The Fed controls short-term rates; long-term rates follow.
• Credit score. Better scores get lower rates.
• Loan type. Jumbo loans (over $766,000) may have higher rates.
• Down payment. More down (20% vs. 5%) can lower your rate slightly.
• Lender competition. Shopping among lenders can save 0.25–0.5%.

A 0.5% rate difference ($6,000 vs. 6.5%) on a $240,000 loan over 30 years costs roughly $50,000 in extra interest. Shopping is worth it.

Locking your rate

When you apply for a mortgage, you can “lock” a rate for a period (usually 30–45 days) while your application is processing. This protects you if rates rise during this time.

If rates fall, you are locked in and cannot benefit (unless you refinance). Rate locks are an important protection during volatile markets.

Prepayment and early payoff

You can pay extra principal anytime without penalty. If your monthly payment is $1,439, you can pay $1,600 or $2,000; the extra goes to principal and shortens your loan.

Paying extra principal is powerful if you have a high interest rate (6%+). Every $1,000 extra saves roughly $2,000 in interest over the life of the loan.

However, if you have lower-rate debt or investment opportunities (stock market returns average 9–10%), paying down a 3% mortgage may not be optimal.

See also