Fixed-rate mortgages (how they work and which term to choose)

How a fixed-rate mortgage works

A fixed-rate mortgage charges the same interest rate from the first payment to the last. The lender sets the rate when you lock it, and the principal-and-interest payment is calculated once so that equal installments pay the loan off at the end of the term.

• Rate: set at the lock, unchanged for the whole term
• Payment: the same principal and interest every month
• Early years: most of each payment goes to interest
• Later years: most of each payment reduces the balance

Interest is charged on the remaining balance, so the split inside each payment shifts every month even though the total stays put. That is why extra principal paid early saves the most: it removes balance that would otherwise accrue interest for decades.

How to choose a term

Start from the payment, not the rate: choose the shortest term whose payment still leaves room for savings, repairs and a bad month. Shorter terms usually carry lower rates, which helps, but your budget decides.

What sets your rate

A lender builds your rate from bond-market yields, its own margin and an adjustment for risk. Four inputs are yours to shape:

• Credit score: higher scores qualify for better pricing
• Down payment: more equity lowers the lender's risk
• Term: shorter terms usually price below longer ones
• Points: prepaid interest that buys a lower rate

Offers can differ between lenders on the same day, so comparing several quotes is the first step to a better rate.

What a fixed-rate mortgage really costs

The table prices a $400,000 loan at Freddie Mac's weekly averages as of Nov 5, 2026: 7.18% for the 30-year and 6.57% for the 15-year. Current 30-year fixed rates are tracked on their own page, with the 15-year alongside.

The 15-year loan costs $790 more each month — $3,500 against $2,710 — but total interest falls from $575,600 to $230,000, a saving of $345,600. The gap comes from two things: half as many years of interest, and the lower rate that shorter terms usually carry.

At 7.18%, the 30-year loan repays the $400,000 plus $575,600 in interest. That figure is the price of the low payment, and it is the number to keep in view when a lender quotes only the monthly amount.

Costs the rate quote leaves out

The rate and payment are only part of the bill. Four costs sit outside the quote, and each is worth finding on your Loan Estimate:

• Closing costs: lender, title and appraisal fees, paid again on a refinance
• Escrow deposits: months of taxes and insurance funded at closing
• Mortgage insurance: PMI or FHA premiums when the down payment is small
• Rate-lock expiry: a delayed closing can mean an extension fee

What a fixed rate doesn't protect you from

A fixed rate protects the principal-and-interest payment and nothing else. Four exposures remain after you lock:

• Total interest: $575,600 on a 30-year $400,000 loan at 7.18%
• No automatic drop: lower rates reach you only through a paid refinance
• Escrow changes: higher taxes or insurance still raise your monthly bill
• Unrecovered points: a bought-down rate pays off only if you keep the loan

The CFPB describes a fixed-rate mortgage as one whose interest rate is set when you take out the loan and does not change. That promise covers the rate only: the escrow share of your payment follows your actual tax and insurance bills.

30-year fixed vs. 15-year fixed vs. 5-year ARM

These three cover most purchase decisions: a long fixed term for the lowest payment, a short fixed term for the least interest, and an adjustable rate that holds only for the first five years.

On the same loan amount, the shorter term trades a bigger payment for far less interest; the 15- vs. 30-year comparison runs the full math. For how adjustable rates reset, see adjustable-rate mortgages.

Who a fixed-rate mortgage fits

A fixed rate suits anyone who will carry the payment for years and needs it to stay predictable. The term then depends on how much monthly room the budget has.

• Buyers who expect to stay in the home many years
• Households that need a housing payment they can plan around
• Borrowers who could not absorb a payment increase later
• Buyers who would rather not time the rate market

Look harder at an adjustable-rate loan if you expect to sell or refinance within a few years and its starting rate prices below the fixed quote. And skip the 15-year term if its payment would leave no emergency cushion.

Fixed-rate mortgages: pros and cons

What lenders check for a fixed-rate loan

The loan program sets the minimums, not the rate type. A conventional loan generally wants a credit score of 620 or higher, a down payment as low as 3% and a debt-to-income ratio near 45%, stretching to 50% with strong compensating factors.

The term changes the math. A 15-year payment of $3,500 on $400,000, before taxes and insurance, raises your debt-to-income ratio more than the $2,710 30-year payment does, so a borrower who qualifies for one term may not qualify for the other at the same price.

Requirements at a glance

• Credit score of 620 or higher on a conventional loan (580 on FHA with 3.5% down)
• Down payment of at least 3% on a conventional loan, with mortgage insurance usually required below 20% down
• Debt-to-income ratio near 45%, up to 50% with strong compensating factors
• Income that covers the full payment on your chosen term, since a 15-year payment is larger
• Loan amount within the $832,750 conforming limit ($1,249,125 in high-cost counties) for standard pricing
• A term chosen at application and a rate locked before closing