Fixed Rate Mortgage Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Fixed Rate Mortgage, written in plain English, along with examples of how it is used.
What is Fixed Rate Mortgage?
A mortgage with an interest rate that stays at the same amount for the duration of the loan. Opposed to an adjustable rate mortgage (ARM).
History and Meaning of Fixed Rate Mortgage
A fixed-rate mortgage is a conventional type of mortgage in which the interest rate on the outstanding balance remains the same throughout the life of the loan. Because the interest rate is fixed, borrowers know what the monthly principal and interest payments will be in advance, allowing them to budget accordingly.
Fixed-rate mortgages have been available for over a century, and they have historically been the most popular type of mortgage in the United States. The traditional loan term for these mortgages is 30 years, but shorter-term loans such as 15-year mortgages and 20-year mortgages are also available.
Examples of Fixed Rate Mortgage
- Jane took out a 30-year fixed-rate mortgage at a 4% interest rate. Her monthly payment is $1,432, which includes principal and interest.
- John wants to pay off his mortgage faster, so he refinanced from a 30-year fixed-rate mortgage to a 15-year fixed-rate mortgage. His interest rate dropped from 5% to 3.5%, and his new monthly payment is $2,142.
- Mike took out a 20-year fixed-rate mortgage at a 4.5% interest rate. He bought a new home for $350,000 and put down $70,000. His monthly payment is $2,216.
Legal Terms Similar to Fixed Rate Mortgage
- Adjustable-Rate Mortgage (ARM) - A mortgage in which the interest rate changes periodically, typically according to changes in a specific financial index.
- Interest-only mortgage - A mortgage in which the borrower only pays the interest on the loan for a certain period, usually between 5 and 10 years at the beginning of the mortgage term, after which the borrower starts paying the principal as well.
- Balloon mortgage - A mortgage that requires the borrower to make very low payments for a fixed period and then repay the remaining balance in a lump sum payment.