A fixed interest rate means that on a loan or mortgage the interest rate stays the same throughout the term of the loan or mortgage.
This is available to people who want predictability in their payments and don’t want their interest rates on their loan or mortgage to fluctuate, making their payments potentially higher than what they expected.
A fixed interest rate avoids any risk associated with a variable interest rate, where an interest rate can change depending on the prime interest rates unexpectedly.
The type of financial products that can come with fixed interest rates include:
- Credit cards
- Adjustable-rate mortgages
- Private student loans
- Auto loans
Fixed vs Variable mortgage is that the interest on the fixed mortgage does not change over the mortgage term. The interest rate could potentially be higher but the amount of principal being paid on the mortgage remains stable. A variable mortgage is where the interest rate can fluctuate causing the amount of the principal being paid to also fluctuate.