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Fixed-Rate Mortgage: Definition And How It Works

4-Minute Read
Published on December 4, 2020
Rocket Mortgage isn't offering 5-year conventional ARMs at this time.

Different types of mortgages are appropriate for different situations. It’s important to know what each type of mortgage means for you. If you’re new to mortgages, or never looked hard at your current one, you may wonder what a fixed-rate mortgage is.

Let’s go through what this type of mortgage is, how it works and help you determine if it’s the right one for you.

What Is A Fixed-Rate Mortgage?

A fixed-rate mortgage’s interest rate remains the same throughout repayment of the loan. The rate you get when you secure the loan will be the rate you have the whole time you’re paying your mortgage.

Fixed-rate mortgages make up the majority of mortgages in the U.S. Chances are, if you have a mortgage and are unsure what type it is, it’s a fixed-rate mortgage.

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How Does A Fixed-Rate Mortgage Work?

Fixed-rate mortgages have two main components which play off each other. These components are the loan term and the interest rate. The loan term is the length of time to pay off the loan. Common loan terms are 15 and 30 years, but the Quicken Loans® YOURgage® allows you to adjust your loan term from 8 – 29 years.

Fixed-rate mortgages are offered in almost every loan type. FHA loans, VA loans, conventional and jumbo loans all offer fixed-rate home loans. Not to mention, most mortgage lenders have a fixed-rate option as their standard loan offer.

National mortgage rates are determined by fluctuations in the bond market and the Federal Reserve encouraging more borrowing. On a personal level, your mortgage rate is determined by additional factors like your credit score, your debt-to-income ratio and length of the loan.

Generally, shorter loan terms lead to lower interest rates. This is because an 8-year mortgage is much less of a risk for a bank than a 30-year mortgage. You will pay less interest with a shorter term, but your mortgage payment will be higher.

Fixed-rate mortgages are fully amortizing, meaning all interest and principal is paid off over the loan term. These mortgages replaced what are called balloon payment mortgages, which required a large payment at the end of the loan term.

Most fixed-rate mortgages start with more of your payment going to interest than principal. Amortization is the scale telling you the balance between the two. As you pay off your loan, more and more of your payment will be applied to the principal.

Pros And Cons Of A Fixed-Rate Mortgage

Like all loan options, fixed-rate mortgages come with pros and cons. To make the most of your mortgage, weigh these advantages and disadvantages to determine if a fixed-rate mortgage is right for you.

Let’s break it down.


  • Your payment will be the same every month.
  • If you locked in your loan at a lower rate, your rate won’t go up.
  • The loan is simple, with no unexpected changes.
  • It’s easy to calculate and predict how much interest you will pay over the course of the loan.
  • You can pay extra on your payment to pay down the principal, paying off the mortgage quicker and saving on interest.


  • You may not get as low of a rate as the intro rate on an adjustable rate mortgage.
  • If you’re planning on selling or refinancing within 5 years, an adjustable rate mortgage may be a better option.
  • If the average interest rate drops, you’ll be stuck with the higher rate you took the mortgage out at. Your rate won’t change unless you refinance.

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Fixed-Rate Mortgage Vs. Adjustable Rate Mortgage

Now that you know what a fixed-rate mortgage is, how does it compare to an adjustable rate mortgage (ARM)? ARMs are mortgages where the interest rate changes regularly. They’re usually represented by a numerical value, like 5/6, 7/6 or 10/6. The low introductory rate is locked in for the first 5, 7 or 10 years, then adjusts twice per year.

ARMs have more complex mechanics. After your introductory period, your mortgage lender consults an interest rate index (SOFR) to determine how your rate will change. Depending on the loan, there’s a structure in place that caps the amount your interest rate can adjust up or down, as well as how high or low it can go over the course of the loan.

Fixed-rate mortgages don’t have these mechanics. Your rate is the same from the day you buy your property until you refinance, sell or pay off the loan.

Where fixed-rate mortgage payments are dependable, ARMs can offer a low introductory rate. This low rate is enticing, especially if you plan to sell or refinance before the rate adjusts up.

If you’re moving into a starter home, an ARM may be a better option for you. You could use the home to build credit and some equity and upgrade to a larger home before the rate goes up. Likewise, if rates are high right now, you could take out an ARM at a lower rate and refinance to a fixed-rate mortgage if rates drop.

Is A Fixed-Rate Mortgage Right For You?

Do you want a predictable monthly mortgage payment? Do you plan to keep the property for 10+ years? Are current market interest rates relatively low? These are all questions to ask yourself when considering any mortgage.

A fixed-rate mortgage will have the same payment month after month (excluding changes in tax). It’s easy to compare other fixed-rate mortgages when shopping because the mechanics aren’t complex.

Interested in more information? Speak with a Home Loan Expert today.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.