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  • Fixed Rate

  • A fixed rate mortgage is one in which the interest rate does not fluctuate during the term of the mortgage. The term of a mortgage is usually 5 years but it can vary anywhere from 6 months to 10 years. The term of a mortgage should not be confused with the amortization. The term represents the length of the contract between the borrower and seller. The term is usually much less than the amortization period. The amortization is the length of time that it would take to pay off the mortgage completely under the current terms. The standard amortization length is 25 year but again it can vary usually anywhere from 15 to 35 years.

    Therefore, a fixed rate gives the borrower some peace of mind, knowing that during the length of the term, the rate and the payments will not fluctuate. They will remain constant. A fixed rate can be more or less than a variable rate mortgage (one which fluctuates with the prime lending rate) depending on which direction the lender anticipates rates moving.

    Currently the variable rate is less than the fixed. If rates continue to increase (as they are expected to do), then the borrower with the fixed rate wins but only IF it increases "quickly". That is, if the variable rate surpasses the fixed rate before the end of the term.

    Borrowers with fixed rates should beware of a false sense of security. They are only safe until the mortgage matures (ex. in 5 years). They then become exposed to current market rates just like everyone else!