How do fixed-rate mortgages work? Is a fixed-rate loan best?

December 21, 2022 - 6 min read

What is a fixed-rate mortgage?

In mortgage terms, a fixed rate means the interest rate remains the same for the life of your home loan — keeping your monthly principal and interest payment consistent.

The rate on a fixed mortgage is locked upfront. And, unlike an adjustable-rate mortgage (ARM), your rate can never go up. In an unstable interest rate market, fixed-rate mortgages give homeowners stable and predictable payments for the long haul.

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How do fixed-rate mortgages work?

A fixed-rate mortgage or “FRM” works just like the name implies: your interest rate is set or “fixed” for the entire duration of the loan. That means your rate and monthly mortgage payment will never change (unless you decide to change them).

The most popular type of home loan is the 30-year fixed-rate mortgage. This type of loan is structured, or “amortized,” so that the loan will be paid in full by the end of its 30-year term.

Keep in mind that, although a 30-year FRM locks your rate for three decades, you’re not required to keep the loan or the rate that entire time. If interest rates drop, homeowners can often refinance into a lower rate and payment to save money.

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Fixed-rate mortgage terms to know

Fixed-rate mortgages are comprised of three parts: principal, interest, and amortization. Knowing these three terms is key to understanding how a fixed home loan works.

Loan principal

Your loan amount or “mortgage principal” represents the amount you originally borrowed when you purchased your home. Mortgage principal is calculated by subtracting your down payment from the purchase price. If you paid $300,000 for your home with a down payment of 10% ($30,000), your principal balance would be $270,000. This is the amount you’ll pay off over time — with interest.

Interest rate

Interest is the second key component of your home loan. Interest is money paid to your lender in exchange for providing you with a mortgage; in other words, it’s the cost of borrowing.

Your interest rate helps determine your monthly mortgage payment as well as the total amount you’ll pay your lender over the life of the loan.

With a fixed-rate mortgage, your interest rate can never change unless you decide to change it (for example, by refinancing). That means your monthly payment will never change, either. This predictability is part of the reason most homeowners choose a fixed-rate loan over a variable-rate loan.

Amortization schedule

“Amortization” is a fancy term for the process of paying off your mortgage. Loan amortization describes the way in which your mortgage payments are spread out between principal and interest over time.

With fixed-rate mortgages, your total payment amount stays the same, but the breakdown between principal and interest fluctuates each month based on the amortization schedule.

As your fixed-rate loan amortizes, the amount going toward principal starts out small, and gradually grows larger month by month. Interest, by contrast, is the majority of each mortgage payment at the outset but shrinks to nearly nothing at the end of 30 years.

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Fixed-rate mortgage loan options

Fixed-rate mortgages come in a variety of loan types and loan terms.

Virtually every major mortgage program — including conventional, FHA, VA, USDA, and jumbo loans — offers fixed rates. Some offer adjustable-rate mortgages as well, though these are far less common.

Borrowers have options for their loan term, too. (That’s how long you have to pay off your mortgage.)

The most common fixed-rate loan terms are 30 years and 15 years. Many lenders offer 10- and 20-year fixed-rate options, as well. Some mortgage companies even let you choose your own term; anywhere between 8 and 30 years, for example.

  • 30-year term: The 30-year fixed-rate mortgage is the most popular fixed-rate option, especially for first-time home buyers. That’s because spreading out the payments over a long time keeps your payments lower
  • 15-year term: Although the monthly payments are higher with a 15-year fixed-rate mortgage, many homeowners choose this option over a 30-year term. 15-year mortgages mean you pay far less interest and pay off your home sooner

While there can be clear advantages to shorter-term loans, you may want a longer-term loan if you want lower payments. Remember, as long as your loan has no early payoff penalties, you can always make extra payments each month that go directly to your loan principal.

Current fixed mortgage rates

According to our lender network*, current fixed mortgage rates start as low as % (% APR) for a 30-year conventional mortgage. Keep in mind that fixed interest rates vary widely depending on the loan program and the borrower’s credit score, along with other financial details.

You can see a selection of current mortgage rates below. But when you’re ready to get serious about buying or refinancing, work with a lender to get a custom quote and see your “real” rates.

ProgramMortgage RateAPR*Change
Conventional 20-year fixed
Conventional 20-year fixed 6.846% 6.905% +0.2
Conventional 30-year fixed
Conventional 30-year fixed 7.075% 7.125% +0.03
Conventional 15-year fixed
Conventional 15-year fixed 6.542% 6.622% +0.08
30-year fixed FHA
30-year fixed FHA 6.919% 6.962% +0.19
Conventional 10-year fixed
Conventional 10-year fixed 6.415% 6.498% +0.05
5/1 ARM Conventional
5/1 ARM Conventional 6.611% 7.934% Unchanged
30-year fixed VA
30-year fixed VA 7.106% 7.149% +0.29
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.

*Lowest and average daily interest rates according to The Mortgage Reports’ lender network. Your own interest rate will be different. See our rate assumptions here

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Pros and cons of a fixed-rate mortgage

Fixed-rate mortgage loans have a number of benefits. One of the biggest benefits is that there’s no risk of your interest rate changing over time. This makes it easier to budget your finances and make a consistent, fixed payment over the duration of your loan.

Another benefit, which is commonly overlooked, is that most fixed-rate mortgages don’t carry prepayment penalties. This means if you opted for a 30-year fixed-rate mortgage, you can still make extra payments. Doing so will not only pay off your principal sooner, but you’ll pay less interest, too.

Additional fixed-rate mortgage advantages, along with a few disadvantages include:

Fixed-rate Mortgage ProsFixed-rate Mortgage Cons
Predictable payments make it easier to budgetFRM rates are typically higher than ARMs at the outset, meaning you’ll pay more interest at least for the first few years
Regardless of market volatility and rising rates, your rate and payment remain the sameShould rates drop, the only way to take advantage is by refinancing
FRMs are usually easier to understand than ARMs which have teaser periods, caps, and adjustmentsHigher initial rates and payments mean you may qualify for less home

Fixed mortgage rates vs. variable mortgage rates

When interest rates are rising, some home buyers explore “variable-rate” or “adjustable-rate mortgages” (ARMs) to lower their rates and monthly payments.

ARMs come with an ultra-low “teaser rate” that will eventually go up or down once you get past the initial fixed-rate period. That initial lower rate can make it easier for some first-time buyers to afford a mortgage at the outset

This can be an ideal strategy for homeowners who know they will only be in their homes for a few years.

For example, if you know you’ll be moving within 3-5 years, a 5/1 ARM could be a great fit for your situation. You’ll get to enjoy a lower rate and payment for the initial fixed period without having to worry about your rate and payment going up because you will be selling prior to the rate adjustment.

On the other hand, when interest rates are rising, some homebuyers aren’t interested in taking on the risk of an adjustable-rate mortgage. If rates continue rising, you could have significantly higher payments when your rate adjusts.

Ultimately, fixed-rate mortgages can offer a lot more stability and financial security than variable-rate loans — especially if you’re buying a home you plan to keep for a long time. And that’s why most borrowers choose a fixed rate despite the lower initial cost of an ARM.

Is a fixed-rate mortgage best?

When you find the home of your dreams, it’s important to get the financing right.

With interest rates on the rise, more homeowners are exploring adjustable rates and other creative mortgage strategies. But none of these have been able to beat out the reliable old fixed-rate mortgage.

In fact, 90% of mortgage borrowers chose a traditional, 30-year FRM over an adjustable-rate mortgage in mid-2022 — despite ARM rates being more than half a percent lower on average.

Knowing your rate and payment won’t change can help ease homebuying anxiety in an uncertain market. Talk to a lender to discuss your options.

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Craig Berry
Authored By: Craig Berry
The Mortgage Reports contributor
With over 20 years in mortgage banking, Craig Berry has helped thousands achieve their homeownership goals.