A fixed rate mortgage (FRM) is quite possibly the most popular type of mortgage. As its name implies, it’s a home loan with an interest rate that remains fixed for the entire term. Whereas the interest rate on other types of loans, such as an adjustable rate mortgage, may adjust or “float” even if there is an introductory fixed rate period, the interest on a fixed rate mortgage remains the same no matter what for the entire loan term.
Fixed-Rate Mortgage Term Lengths
- 15-year fixed rate mortgages & 30-year fixed rate mortgages are the most common term lengths.
- 10-year fixed rate mortgages exist for borrowers who want to pay less interest over time.
- 40- and 50-year mortgages are sometimes available in high-priced areas.
Outside of the U.S., fixed-rate mortgages are less common and in some countries, a fixed rate home loan is unavailable except for a very short-term loan. For example, Canadian mortgage rates typically can be fixed for no more than 10 years, while the maturity on these loans is usually 25 years.
Pricing on Fixed Rate Mortgage Products
Typically, a fixed rate mortgage is often more expensive than an adjustable mortgage, both in terms of interest rates and amount paid over the life of the loan.
Fixing a rate over the long-term is considered a risk to the lender, so they tend to set these loans at a higher interest rate to compensate for rising market interest. The difference between the interest rates for short and long-term loans is called the yield curve. Longer term loans are more expensive, as you pay more interest over the life of the loan.
However, the higher starting interest rate on a fixed rate loan does not necessarily mean that an adjustable rate mortgage is a better form of financing. If interest rates go up, the rate on the adjustable rate mortgage (ARM) will go higher as well, while the FRM will remain stable. Borrowers who went with an adjustable rate mortgage to save money may find themselves paying far more out of pocket when the adjustment takes effect.
Even though fixed rate mortgages are considered the most stable and reliable of mortgage loans, it’s still possible to default on a fixed rate mortgage. You will need to take a look at the loan term, how long you plan to stay in the house, the current interest rate and how likely you are to refinance later on to determine which option is the best fixed rate mortgage for you.