Fixed Rate Mortgage Overview
- How a Fixed Rate Mortgage Works
- Use our MORTGAGE CALCULATOR to determine the monthly payment for a fixed rate loan
Fixed Rate Mortgage Overview Instructional Video
- Key Fixed Rate Mortgage Key Items
- The interest rate that you pay on your mortgage
- For fixed rate mortgages, the interest rate will not change over the life of the mortgage
- Indicates the length of the mortgage, presented in years
- A 30 year fixed rate mortgage has a term of 30 year
- A fixed rate mortgage has equal monthly mortgage payments over the term of the mortgage
- A 30 year fixed rate mortgage has 360 equal monthly mortgage payments (12 payments per year * 30 years = 360 total monthly payments)
- Fixed Rate Mortgage Rates
- Fixed Rate Mortgage Term
Interest Rate for a $380,000 Fixed Rate MortgageInterest Rate 5.000% 4.000% 3.000% 2.000% 1.000% 0.000%
- 2.625%10 Years
- 2.750%15 Years
- 3.250%20 Years
- 3.500%25 Years
- 3.650%30 Years
- 4.125%40 Years
Fixed rate mortgages are the most popular type of loan because they offer the borrower certainty over the life of the mortgage. As the name indicates, the interest rate and monthly mortgage payments for a fixed rate mortgage are fixed and do not change over the life of the loan. This means the borrower does not have to worry about an increase in interest rates and corresponding increase in mortgage payment.
Fixed rate mortgages amortize over the term of the mortgage which means that with your final monthly mortgage payment, the loan is paid-off in full, with interest. Because of the way amortization works, a fixed rate mortgage has a constant payment over the life of the mortgage, but the split between interest and principal payments changes a little every month. At the beginning of the mortgage, the majority of your monthly payment goes to paying interest as opposed to reducing your principal balance. For a 30 year fixed rate loan, it takes approximately nineteen to twenty three years to pay down half of the loan, depending on the interest rate. The higher the interest rate, the longer it takes to pay down the mortgage balance.
The beauty of a fixed rate mortgage is its simplicity -- in order to evaluate a fixed rate mortgage you only need to understand two key concepts: interest rate and term. Interest rate is the fee you pay to the lender for borrowing the money and term is the length of the mortgage. The table below outlines these key concepts for a fixed rate mortgage.
The interest rate you pay on a fixed rate mortgage depends on several factors including your credit score, loan-to-value (LTV) ratio, loan term and mortgage type. Additionally, fixed rate mortgage rates tend to be higher than the initial interest rate for an adjustable rate mortgage (ARM) or interest only mortgage. Fixed rate mortgages are provided by traditional lenders such as banks, mortgage banks, mortgage brokers and credit unions. Borrowers should shop multiple lenders to find the fixed rate mortgage with the lowest interest rate and fees. Click on lenders in the table below or INTEREST RATES to compare fixed rate mortgage interest rates.
Lenders typically offer fixed rate mortgages with 10, 15, 20, 25, 30 and 40 year terms, with the 30 year term being the most popular. The shorter the term, the lower the interest rate but the higher the monthly mortgage payment because the principal amount of the mortgage is amortized (re-paid) over a shorter period of time. Although you pay a higher monthly payment with a shorter mortgage term, you minimize the total amount of interest you pay over the life of the mortgage. In other words, the shorter the mortgage term, the less interest you pay to the bank for borrowing the money. We review mortgage term and total interest expense in detail below.
The charts below demonstrate how the interest rate and monthly payment change depending on the term of the mortgage. The first chart illustrates the longer the term, the higher the interest rate while the second chart illustrates the longer the term, the lower the monthly mortgage payment.
Monthly Mortgage Payment for a $380,000 Fixed Rate Mortgage
- $3,60410 Years
- $2,57015 Years
- $2,15520 Years
- $1,90225 Years
- $1,76030 Years
- $1,61840 Years
- Fixed Rate Mortgage Term and Total Interest Expense
Total Interest Expense Comparison
Total Interest Over the Term of the Mortgage Monthly Mortgage Payment $500,000 $5,000 $375,000 $3,750 $250,000 $2,500 $125,000 $1,250 $0 $0
- Total Interest Expense
- Monthly Mortgage Payment
- 10 Years $85,977 $4,050
- 15 Years $132,575 $2,959
- 20 Years $181,741$2,424
- 25 Years $233,405 $2,111
- 30 Years $287,478 $1,910
- 40 Years $402,440 $1,672
- Related FREEandCLEAR Resources
The amount of total interest expense you pay over the life of the mortgage is directly related to the term of the mortgage. The longer the mortgage term, the more you pay in total interest expense over the life of the mortgage. So even though a mortgage with a shorter term has a higher monthly payment than a mortgage with a longer term, you end up paying much less in total interest expense with a mortgage that has a shorter term.
The chart below compares the monthly mortgage payment and total interest expense over the life of the mortgage for $400,000 fixed rate mortgages with a 4.0% interest rate and 10, 15, 20, 25, 30 and 40 year terms. As demonstrated by the chart, the shorter the mortgage term, the higher the monthly payment but the lower the total interest expense over the life of the mortgage. Selecting a shorter mortgage term can save you tens of thousands and even hundreds of thousands of dollars in interest expense over the life of the mortgage. That means less money for the lender and more money for you.
One creative way to think about mortgage term is to get a mortgage with a longer term but make the same payment that you would with a shorter term mortgage, so a higher mortgage payment than what is required. That way you maintain the flexibility of having a lower required monthly mortgage payment that goes along with a longer mortgage term (in case you cannot afford to make the higher payment), but you pay off your mortgage faster and potentially save hundreds of thousands of dollars in interest expense.