Fixed-rate mortgage

As a result, payment amounts and the duration of the loan are fixed and the person who is responsible for paying back the loan benefits from a consistent, single payment and the ability to plan a budget based on this fixed cost.

Fixed-rate mortgages are characterized by amount of loan, interest rate, compounding frequency, and duration.

According to scholars, "borrowers should generally prefer adjustable-rate over fixed-rate mortgages, unless interest rates are low.

[2] Because of the large payment at the end of the older, balloon-payment loan, refinancing risk resulted in widespread foreclosures.

Fixed-rate mortgages are the most classic form of loan for home and product purchasing in the United States.

In Denmark, fixed-rate 30-year mortgages are the standard form of home loan.

[5] At the end of that time, many borrowers refinance their mortgages to lock in another stable rate for the next few years.

[6] Lenders, in turn, influence consumer decisions which already prefer lower initial monthly payments.

The relationship between interest rates for short and long-term loans is represented by the yield curve, which generally slopes upward (longer terms are more expensive).

In effect, the lender has agreed to take the interest rate risk on a fixed-rate loan.

The fixed monthly payment for a fixed rate mortgage is the amount paid by the borrower every month that ensures that the loan is paid off in full with interest at the end of its term.

(expressed as a fraction, not a percentage, i.e., divide the quoted yearly nominal percentage rate by 100 and by 12 to obtain the monthly interest rate), the number of monthly payments

This formula is provided using the financial function PMT in a spreadsheet such as Excel.

In the example, the monthly payment is obtained by entering either of these formulas: This monthly payment formula is easy to derive, and the derivation illustrates how fixed-rate mortgage loans work.