What Is A Fixed Rate Mortgage?
Mortgage Basics
A mortgage is either an adjustable rate mortgage or a fixed rate mortgage.
In theory, an adjustable rate loan is usually one where the interest rate can change sometimes during the life of the loan.
In theory, a fixed rate mortgage is one where the interest rate doesnt change over time.
In reality people can mix up these terms to describe loans.
Fixed Rate Mortgages
A loan that is a 30 year mortgage is a loan where the interest rate remains the same for the entire 30 year term of the loan.
The interest rate on this type of mortgage is usually the highest interest rate. This is why borrowers often choose other types of mortgage with lower interest rates.
Another loan that is fixed is a 5 year fixed mortgage. This is a loan with a term of 30 years where the interest rate is fixed only for the first five years. After this period is over the interest rate on the loan becomes adjustable.
A mortgage loan can be fixed for many different time frames, including 6 months, 1 year, 2 years, 3 years, 5 years, 7 years, 10 years, 15 years, or more.
In each of these instances the interest rate will adjust when the fixed rate period is over.
Adjustable Rate Mortgages
Adjustable rate mortgages usually have lower interest rates.
A borrower who is only planning on living in a house for 1 year may decide to get a loan that is only fixed for 2 years. That is all the interest rate protection the borrower needs. Of course, if the borrower ends up staying longer than 2 years the interest rate might become adjustable and the borrower may either have to live with it or refinance into a different loan.
Adjustable rate mortgages usually have a lifetime cap. The interest rate cannot rise above this amount.
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