Definition: The interest rate on a fixed rate mortgage stays the same throughout the life of the loan. The interest rate is usually just a little higher than that of the 30 year Treasury Bond at the time the mortgage is issued.
Each month's payment is equal to the interest on the principal and a bit of the principal. Since a bit of the principal is paid off, then the interest payment on the remaining principal will be a little less each month. Your payment is the same, so a little more of the principal is paid off each month.
The advantage of the fixed rate mortgage is that the payment is the same each month. The disadvantage is that the interest is generally a little higher than an adjustable rate or interest only loan.
Also Known As: fixed rate loan, conventional loan, conventional mortgage, 30-year fixed loan, 30-year fixed mortgage, 15-year fixed loan, 15-year fixed mortgage
Examples: Thanks to low rates on Treasury Bonds, the interest rates on 30-year fixed rate mortgages have been below 7% since March 2002. (Source: Freddie Mac Web Site.)
