Most people who buy a home can’t afford to pay for one in full up front. A mortgage allows you to make a down payment on a home (though some loan types don’t require one) and pay off the remaining balance over time.
Some mortgages come with fixed interest rates, while others come with rates that adjust over time. Here, we’ll review what fixed-rate mortgages are, how they work and the pros and cons of signing one. That way, you’ll know whether a fixed-rate mortgage is right for you.
- A fixed-rate mortgage is a home loan on which the interest rate never changes.
- You gradually pay down both interest and principal over time, with more going toward the principal later in the loan.
- While fixed-rate mortgages offer stability and predictability, they may initially come with higher interest rates than adjustable-rate mortgages.
What Is A Fixed-Rate Mortgage?
A fixed-rate mortgage is a home loan whose interest rate stays the same for the entire life of the loan. Whether you choose a 15-year mortgage, a 30-year mortgage or a different loan term, your interest rate won’t change, and neither will your monthly principal and interest payments. As of May 14, 2026, the average 30-year mortgage rate is 6.36%.
There are different loan types that offer fixed interest rates. These include:
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How Do Fixed-Rate Mortgages Work?
With fixed-rate mortgages, each monthly payment is divided into two main parts: principal and interest:
- The principal is the amount of money you borrow, calculated as your home’s purchase price minus your down payment.
- Interest is the additional cost of borrowing money from your lender.
Each month, you make the same mortgage payment that covers principal and interest. However, the split between principal and interest changes over time. Early on, a larger portion of your payment each month goes toward interest. This is because interest is calculated based on your remaining loan balance, which is highest at the beginning.
Then, as your balance decreases, less interest accrues, allowing more of each monthly payment to reduce the principal of the loan. This process is called amortization. If you stick to your loan payment schedule, by the end of your loan term, your balance will be $0.
Because the monthly payment on your mortgage always stays the same with a fixed-rate loan, the changing balance between interest and principal happens behind the scenes. But while your actual principal and interest payment won’t change over time with a fixed-rate mortgage, your monthly payment to your loan servicer – the company that collects and processes your mortgage payments – might.
How An Escrow Account Changes Monthly Payments On A Fixed-Rate Mortgage
Some homeowners make a mortgage payment every month of just principal and interest, and then pay their property taxes and homeowners insurance directly to their municipalities and insurers, respectively.
But others make a single payment to a loan servicer to cover their mortgage payment, property taxes and homeowners insurance. The loan servicer then takes care of paying those taxes and insurance premiums.
If you have a loan servicer that asks you to set up an escrow account for property taxes and homeowners insurance, your monthly payments will be larger than what you owe for principal and interest. Those monthly payments may also change if your taxes or insurance premiums increase (or decrease, which is possible but unlikely). But even in that scenario, your principal and interest payment will always remain fixed.
Here’s an example. Let’s say you make a 20% down payment on a $300,000 home and obtain a 30-year fixed-rate mortgage at 6.4% to finance the rest. That 6.4% rate is the rate you’ll pay unless you refinance.
Your monthly mortgage payments will be $1,501 throughout the life of your loan (unless you refinance). That $1,501 covers principal and interest on your loan.
During the early stages of paying off your mortgage, a greater share of that $1,501 will go toward interest. So if you check your mortgage balance, you may not see much progress early on toward paying off your loan. But as you keep making payments, more and more of that $1,501 will go toward your loan’s principal.
Now, let’s say that when you sign your loan, your annual property tax bill is $3,000 and your yearly homeowners-insurance premium is $1,000. If your mortgage loan servicer asks you to set up an escrow account so they can pay those added costs for you, your monthly payments could be $1,834: $1,501 for principal and interest, plus $250 toward property taxes and $83 for homeowners insurance. (Some loan servicers may charge a little extra to build up a buffer, but this is a basic example.)
If your property tax bill then increases by $200 the next year, and your homeowners insurance goes up by $100, your monthly payment to your loan servicer could rise to $1,860. But in that case, you’re still paying just the $1,501 for principal and interest on your mortgage. The total monthly payment is higher only because you’re now paying $267 a month toward property taxes and $92 a month toward homeowners insurance.
How Does Refinancing A Fixed-Rate Mortgage Work?
When you refinance a mortgage, you exchange your current home loan for a new one with different terms. You may decide to refinance a fixed-rate mortgage if interest rates drop and are considerably lower than your current rate, which could result in lower monthly payments.
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Fixed-Rate Mortgages Vs. Adjustable-Rate Mortgages
Fixed-rate mortgages aren’t your only borrowing option to finance a home purchase. You can also look at an adjustable-rate mortgage, or ARM.
An ARM starts with a fixed interest rate for an initial time period. This can be 5 years, 7 years or another time frame. Whatever it is, when that initial period ends, the rate adjusts periodically based on market conditions. This means your monthly payment can increase or decrease over time.
ARMs commonly offer a lower initial interest rate than fixed-rate mortgages (if they didn’t, they wouldn’t be worth the risk you’re taking on with the potential for your rate to change over time). But on a long-term basis, fixed-rate mortgages offer more stability. However, it may be possible to refinance an ARM into a fixed-rate mortgage before that initial rate is subject to change.
If you’re buying a starter home you expect to sell in a few years, an ARM could make sense. You may be out of that home before your loan even has an opportunity to adjust. But if you’re buying your forever home and don’t want to take the risk of interest rates going up, a fixed-rate mortgage could make the most sense.
Here’s a summary of the differences between fixed-rate mortgages and adjustable-rate mortgages.
| Factor | Fixed-Rate Mortgages | Adjustable-Rate Mortgages |
|---|---|---|
| Predictability | Fixed payments for life of loan | Payments can change over time – for better or worse |
| Initial Interest Rate | Generally higher | Generally lower |
| Affordability Risk | Lower | Higher |
| Best For | Long-term homeowners | Starter homes, short-term ownership |
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Pros And Cons Of Fixed-Rate Mortgages
Fixed-rate mortgages come with both advantages and drawbacks.
Pros:
- Predictable monthly payments: Your principal-and-interest payment stays the same until your home is paid off (unless you refinance your loan).
- Protection from rate increases: If mortgage rates rise, it won’t affect you.
- Simplicity: You don’t have to keep track of when your loan might adjust, as you would with an ARM.
Cons:
- Higher initial interest rates than an ARM: ARMs typically start off with a lower interest rate, allowing for some savings.
- Potential opportunity cost: You might pay more interest over time with a fixed-rate mortgage than an ARM if rates stay low, but this isn’t something you can predict.
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FAQ About Fixed-Rate Mortgages
Are fixed-rate mortgages available in different terms?
How can I get a lower interest rate on a fixed-rate mortgage?
Is a fixed-rate mortgage better than an adjustable-rate mortgage?
Can I pay off a fixed-rate mortgage early?
What happens if interest rates drop after I sign a fixed-rate mortgage?
The Bottom Line
Fixed-rate mortgages offer the benefit of consistent, predictable monthly payments. If you’re buying a home you intend to stay in for a long time, a fixed-rate mortgage could be your best bet, even if it’s possible to snag a lower interest rate initially with an ARM. And remember, if rates fall, you can always look to refinance.
If you decide on a fixed-rate mortgage, make sure to shop around with different lenders to compare rates. Also, make sure to read all your loan documents carefully so you know what to expect.
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Maurie Backman
Maurie Backman has more than a decade of experience covering personal finance topics that include mortgages, loans, retirement, Social Security, and investing. Prior to becoming a full-time writer, she worked in the financial industry as well as in product design and marketing. Maurie holds a bachelor's degree from Binghamton University, where she studied creative writing and finance. She was happy to combine her two areas of study into a career that allows her to educate consumers on a host of financial topics.
