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What is a Fixed-Rate Mortgage?
As its name implies, the interest rate for a fixed-rate mortgage remains fixed (or constant) for the term (or duration) of the loan.
- advantages: You know what you are getting. If the rate is eight percent today, it will be eight percent next year and every year after until the loan is paid. You'll always be able to easily budget your monthly payment since that amount will never fluctuate.
- disadvantages: Lenders sometime charge rates that are higher than the current rate. Also, there are often penalties for prepaying the loan, which is what happens if you should ever decide to refinance your loan (to either get a lower fixed-rate loan or to switch to an adjustable-rate mortgage).
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