Fixed Rate Mortgage
A fixed rate mortgage is a mortgage where the lender agrees to fix your mortgage interest for an agreed upon period of time (mortgage term). A fixed rate mortgage will usually have a term of 1 – 5 years, however some banks now offer fixed rate mortgage terms of 10 years or longer.
A fixed rate mortgage will usually bear a slightly higher interest rate than a variable rate mortgage. This is because it is guaranteed. A fixed rate mortgage will generally have a higher rate the longer the term that is locked in.
Many people choose a fixed rate mortgage over a variable rate mortgage because it is a safe option as the interest rate is fixed and will not change during the mortgage term. Variable rate mortgages carry some risk because if interest rates change individuals with variable rate mortgages will see their mortgage interest increase or decrease accordingly.
Fixed rate mortgages usually compound annually or semi-annually whereas variable mortgages generally compound monthly.
One of the more common mortgages that people select when purchasing a home is a 5 year fixed rate mortgage.