Fixed-rate mortgage
A fixed-rate mortgage carries one interest rate for its whole term. The principal and interest portion of the payment is calculated once at origination and does not move again.
That predictability is the entire product.
What is actually fixed#
The rate, and therefore the principal-and-interest payment.
Not the total monthly payment. Where the loan escrows for property taxes and homeowners insurance — which most do — those amounts change whenever the underlying bills change, and the total payment changes with them.
This distinction produces one of the most common calls servicers receive: a borrower on a fixed-rate loan whose payment has gone up, convinced something is wrong. Nothing is wrong. The fixed part is still fixed; the part that was never fixed moved.
Term length#
The shorter the term, the higher the payment and the lower the total interest. A fifteen-year fixed costs substantially more each month and substantially less overall than a thirty.
The thirty-year version has one advantage the arithmetic does not capture: a lower required payment with the option to pay more voluntarily. That converts a fixed obligation into a flexible one, which matters a great deal to a household whose income is uneven.
The fifteen-year version removes the temptation not to. Which of those matters more is a question about the borrower, not about the loan.
Where it interacts with distress#
A fixed-rate loan removes rate shock as a cause of default, which is why fixed-rate portfolios behaved so differently from adjustable-rate ones after 2007.
What it does not remove is escrow shock. Rising property taxes and rising insurance premiums push fixed-rate payments up every year, on households who budgeted for a payment that was supposed to never change. That is a slower and quieter pressure than a rate reset, and it does not get a name — but it is currently the more common one.
Points and buydowns#
A fixed rate is not a single quoted number. It is a menu.
Paying discount points at closing — each roughly one percent of the loan amount — buys a lower rate for the life of the loan. Whether that is worth doing turns entirely on how long the loan is actually held, and the break-even is usually several years out. A borrower who refinances or sells before it never recovers the cost.
A temporary buydown, by contrast, reduces the rate for the first year or two and then steps up to the note rate. The payment relief is real and it is temporary, and it is worth being certain the eventual payment is affordable rather than only the introductory one.