Fixed-Rate Mortgage

With a fixed-rate mortgage, the borrower knows exactly what their payments will be, regardless of changes in market interest rates. This makes budgeting easier and protects against rising rates.

For example, a 200,000 mortgage at a fixed rate of 5%, repaid over 25 years, has monthly payments of about 1,169. Even if interest rates rise to 7%, the payment stays the same during the fixed period.

The length of the fixed period varies by country. In the United States, mortgages are commonly fixed for the full term, often 30 years. In the United Kingdom, rates are usually fixed for shorter periods, such as two or five years, after which the loan typically moves to a variable rate unless the borrower arranges a new deal. Other countries have their own patterns.

The trade-off is that fixed rates are sometimes higher than variable rates at the start, and borrowers do not benefit if market rates fall. Leaving a fixed-rate deal early may involve paying an early repayment charge.