Fixed-Rate Mortgage

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Definition

Fixed-rate mortgage is the type of mortgage loan in which the interest rate remains the same or fixed over the term of the mortgage. Since the interest rate remains the same, the monthly payments remain the same for the entire mortgage term. It is one of the most popular types of mortgages, especially among the Canadians. However, it is usually more expensive or has a higher starting interest than other mortgages such as variable rate mortgage in which the interest rate may change.

Conventional Fixed-rate mortgages provide borrowers with an established interest rate over a set term of typically 15, 20, or 30 years. Nevertheless, fixed-rate mortgage terms from 6 months to 10 years are also available.  In a fixed- rate mortgage, the shorter the term over which the borrower pays, the higher the monthly payment and vice versa.

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LAYMEN TERMS

Let's say an individual takes a fixed-rate mortgage loan to buy a house at YZ% of interest. He is required to pay the loan in 5 years. With  fixed-rate mortgage loan, within that 5 years, the rate of interest - YZ% remains the same.

HOW DOES THIS TERM APPLY TO YOU

Suppose you opt to a Fixed Rate Mortgage, to buy a house, for a 8-year term at 5%, the interest rate will remain at 5%, regardless of whether the market interest rates rise or fall.

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