A fixed rate mortgage (FRM) is a mortgage loan where the interest rate and payments remain the same through the term of the loan. In a fixed rate mortgage, your monthly repayments are predictable and cover principal and interest over the life of the loan. Fixed rate mortgages are usually more expensive than variable rate mortgages. However, this does not mean a FRMis a worse form of borrowing compared to the adjustable rate mortgages. For example, they offer the protection against rising interest rates: adjustable rate mortgages can go up while a FRM will remain the same.

Why do Fixed Rate Mortgages have higher interest rates?

In effect, the lender has agreed to take the interest rate risk on a fixed rate loan. Some studies show that most of borrowers with adjustable rate mortgages save money in the long term, but that some borrowers pay more. The price of potentially saving money, in other words, is balanced by the risk of potentially higher costs. In either case, you’ve got to make a choice based upon the loan term, the current interest rate, the likelihood that the rate will increase or decrease during the life of the loan, and your overall comfort with changing monthly payments.