Fixed-Rate Mortgage
Definition
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Example
A borrower obtains a 30-year fixed-rate mortgage at 6.5% for $300,000. The monthly principal and interest payment is approximately $1,896 and will remain the same for all 360 payments. The total interest paid over 30 years would be approximately $382,560.
Exam Tip
Fixed-rate mortgages are the most common loan type and frequently tested. Remember that even though the payment stays the same, the portion going to interest vs. principal changes each month (amortization). Compare with ARM where the rate and payment can change.
Related Financing Terms
Deed (in foreclosure context)
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Trustee Sale
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
Foreclosure
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
Conventional Loan
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
FHA Loan
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
VA Loan
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
Frequently Asked Questions
Test Your Financing Knowledge
Practice with exam-style questions to make sure you can apply Fixed-Rate Mortgage and other financing concepts.