Fixed Rate Mortgage

· 3 min read
A fixed-rate mortgage locks in the same interest rate for the entire life of the loan — your principal and interest payment in month one…

A fixed-rate mortgage locks in the same interest rate for the entire life of the loan — your principal and interest payment in month one is identical to your payment in month 360, no surprises, no adjustments, no guessing. It’s the most popular mortgage type in America, and for good reason: certainty has value.

How Fixed-Rate Mortgages Work

You borrow a set amount at a set rate for a set term — typically 15, 20, or 30 years. The lender calculates your monthly payment using an amortization formula that ensures the loan is fully paid off by the end of the term. Early payments are heavily weighted toward interest. Later payments are mostly principal. But the total monthly amount never changes.

The 30-year fixed is the default choice for most homebuyers. It offers the lowest monthly payment of any fixed-rate term. The 15-year fixed has a higher payment but saves enormous amounts of interest. The 20-year sits in between and is weirdly underused.

The Cost Impact

On a $400,000 loan, here’s how the terms compare:

  • 30-year at 7.00%: $2,661/month, $558,036 total interest
  • 20-year at 6.75%: $3,046/month, $331,060 total interest
  • 15-year at 6.50%: $3,484/month, $227,192 total interest

The 15-year costs $823/month more but saves $330,844 in interest. That’s a huge number. If you can swing the higher payment, the 15-year is one of the best financial moves you can make. View the full payment breakdown on our amortization schedule.

Fixed vs. Adjustable: The Real Decision

The fixed-rate premium over ARMs typically runs 0.50-1.00%. You’re paying for predictability. In a low-rate environment, the fixed rate is a no-brainer — lock it in and forget about it. In a high-rate environment, an ARM’s lower initial rate is tempting, but you’re gambling that rates will drop before the adjustment period hits.

Here’s a useful rule of thumb: if you’re keeping the home 7+ years, take the fixed rate. If you’re selling or refinancing within 5 years, an ARM probably saves money. Between 5-7 years is a judgment call based on the rate spread.

When Fixed Rates Aren’t Actually Fixed

Your principal and interest payment is fixed. Your total housing payment isn’t. Property taxes increase. Homeowners insurance premiums climb. If you have an escrow account, your total monthly payment adjusts annually when those costs change. Budget for a 3-5% annual increase in your total PITI even with a fixed-rate mortgage.

Also, PMI on a fixed-rate conventional loan eventually goes away — once you hit 20% equity, you can request removal. That actually makes your payment go down. One of the few pleasant surprises in homeownership.

Wondering if an adjustable rate might save you money? Check our fixed-rate vs. ARM comparison for the trade-offs.

Frequently Asked Questions

Should I choose a 15-year or 30-year fixed?

Take the 30-year if the 15-year payment would strain your budget or prevent you from building an emergency fund and retirement savings. Take the 15-year if you can comfortably handle the higher payment and you want to build equity fast. A middle-ground strategy: get the 30-year and make extra payments toward principal when you can. That gives you the lower required payment as a safety net. Run both options on our mortgage calculator.

Can I refinance a fixed-rate mortgage?

Absolutely. If rates drop significantly (typically 0.75-1.00% or more below your current rate), refinancing makes sense. The key is ensuring the closing costs are recouped through monthly savings before you sell or refinance again. A common break-even period is 18-36 months.