Fixed Rate Mortgage (FRM)

Author:

Moneyzine Editor

1 mins

September 25th, 2023

Advertiser Disclosure

Definition

A fixed rate mortgage is a home loan whereby the interest rate charged the borrower remains fixed over the term of the loan. Since the interest rate does not vary with a fixed rate mortgage, the monthly payments on the loan remain constant throughout the term of the loan.

Explanation

With a fixed rate mortgage, the borrower knows the rate of interest for the duration of the loan's term. This behavior is in contrast to the adjustable rate mortgage, whereby the interest rate of the loan is often tied to an index and can change over the term of the loan.

Fixed rate mortgages are also fully amortizing loans, meaning the entire principal is paid back over the life of the loan. Again, this is in contract with balloon loans and interest-only mortgages.

Fair comparisons between fixed rate mortgages can be made using the annual percentage rate, or APR. The fixed rate mortgage carries the most risk to the lending institution, since they bear all of the risks and rewards of falling or rising interest rates. This benefit is passed on to the consumer at a cost. The interest rate on a fixed rate mortgage is usually higher than balloon mortgages, or adjustable (variable) rate mortgages.

Related Content

What Can Help You Meet Your Budget While Shopping for Important Items?
Budgeting while ensuring you don't compromise on quality can seem daunting. Whether filling your pantry, updating your wardrobe, or keeping up with the latest tech, smart shopping strategies are crucial for keeping your finances in check.
April 2nd, 2024
How to Make a Million Dollars in 10 Years
Truthfully, this title should actually be “How to Make a Million Dollars in 10 Years Without Going Into Debt", but that is just getting a little too winded for my liking. It’s true though!
December 6th, 2024
How to Apply Maslow’s Hierarchy to Your Money This Year
You might vaguely remember your psychology teacher talking about Maslow. He pointed at a picture of a triangle as you nodded off in the back of the school room.
November 18th, 2024
How to Tackle Multiple Savings Goals
When there’s only so much money to go around, there are often multiple savings goals competing for your money. Think of the young professional who’d like to get a more reliable car, buy a house, and save for retirement. Or consider the young family that’s saving for college, retirement, and a bigger house.
March 22nd, 2024
The Countdown to Early Retirement: 10 Expenses to Eliminate
Dreaming of waving goodbye to the daily grind five years ahead of schedule? The road to early retirement is paved with more than good intentions; it requires a meticulously crafted strategy with surprising twists. It's not solely about what you should be doing—like diligently saving a portion of your income or investing wisely—but also about what you need to stop doing.
March 22nd, 2024