Fixed-Rate Mortgage
The term fixed-rate mortgage refers to a home loan that has a fixed interest rate for the entire term of the loan. This means that the mortgage carries a constant interest rate from beginning to end. Fixed-rate mortgages are popular products for consumers who want to know how much they have to pay every month. Fixed-rate mortgages may be open or closed with specific terms of 15 or 30 years or they may run for a length of time agreed upon by the lender and borrower.
Definition: A fixed-rate mortgage is a home loan where the interest rate remains constant throughout the entire loan term. This means that the loan maintains a consistent interest rate from start to finish. Fixed-rate mortgages are popular among consumers who want to know exactly how much they will pay each month.
Origin: The concept of fixed-rate mortgages originated in the early 20th century in the United States, when banks began offering this type of loan to promote the housing market. Over time, fixed-rate mortgages have become a standard loan product in many countries around the world.
Categories and Characteristics: Fixed-rate mortgages are primarily divided into 15-year and 30-year terms.
- 15-year loan: This loan term is shorter, typically with a lower interest rate, but higher monthly payments. It is suitable for borrowers who want to pay off their loan quickly and have a higher repayment capacity.
- 30-year loan: This loan term is longer, with a relatively higher interest rate, but lower monthly payments. It is suitable for borrowers who want to reduce their monthly repayment burden.
Specific Cases:
- Case One: Mr. Zhang purchased a house worth 1 million yuan and chose a 30-year fixed-rate mortgage with an interest rate of 4%. This means that his monthly loan payment is fixed at approximately 4,774 yuan (excluding taxes and insurance).
- Case Two: Ms. Li chose a 15-year fixed-rate mortgage with an interest rate of 3.5% to purchase a house worth 800,000 yuan. Her monthly loan payment is approximately 5,720 yuan (excluding taxes and insurance). Although the monthly payment is higher, she can pay off the loan in a shorter period.
Common Questions:
- Question One: Will the interest rate of a fixed-rate mortgage change during the loan period?
Answer: No, the interest rate of a fixed-rate mortgage remains constant throughout the loan period. - Question Two: If market interest rates decrease, will my fixed-rate mortgage interest rate decrease?
Answer: No, the interest rate of a fixed-rate mortgage is determined at the time of loan agreement and does not change with market interest rates.
