What is a Fixed-Rate Mortgage?

A fixed-rate mortgage is a loan where the debtor has to pay a fixed interest for the entire loan term. Usually, lenders provide either fixed, variable or adjustable mortgage loans. The fixed-rate mortgage loan is one of the most common mortgage products.

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How Does a Fixed-Rate Mortgage Work?

Fixed-rate mortgages are loans having a fixed installment structure. As the amortization schedule progresses, the principal amount becomes bigger while interest becomes smaller. Some fix-rate loans are amortized non-amortized. Amortized loans require fixed payments made up of interest and principal. The principal owed reduces throughout the life of the loan. A non-amortized loan requires payments of only interest, (interest-only loan). The principal is repaid in a lump sum (a balloon payment) at the end of the loan period. In a fluctuating market, fixed-rate loans lower the risk for borrowers and increase risk for the lender.