Fixed-rate or  


mortgages have  

been around since  

the 1930s. The total  

interest and monthly  

payments are set at  

the closing. You repay  

the principal and  

interest in equal,  

usually monthly,  

installments over a  

15-, 20- or 30-year  

period. You know  

from the start  

what you’ll pay  

and for how long.

In most cases,  

you can renegotiate  

the loan to get a lower 

rate if borrowing costs drop. If 

you sell your home, you can pay 

off your loan early, though there 

may be a prepayment penalty.

The interest you owe on a mortgage loan 

may be calculated just once or adjusted 

many times. With a fixed-rate loan, the total 

you’ll owe is determined at closing. With 

an adjustable-rate loan (ARM), the amount 

changes as the cost of borrowing changes.


Choosing between a fixed-rate or an adjustable-

rate mortgage isn’t an all-or-nothing proposition. 

In fact, there are hybrids that offer certain  

advantages of each type while softening some  

of their drawbacks.

Among the most popular are mortgages that 

offer an initial fixed rate for a specific period, 

usually five, seven, or ten years, and then are  

adjusted. The adjustment may be a one-time 

change, to whatever the current rate is. More  

typically, the rate changes regularly over the  

balance of the loan term, usually once a year. 

One appeal of the 

multiyear mortgage

as these hybrids are often called, is that the  

borrower can get a lower rate on the fixed-term 

portion of the mortgage than if the rate were set 

for the entire 30 years. That’s because the lender 

isn’t limited by a long-term agreement to a rate 

that may turn out to be unprofitable.

The lower rate also means it’s easier to qualify 

for a mortgage, since the monthly payment will 

be lower. That’s a real plus, especially if you’re a 

first-time buyer. 

For people who plan to move within a few 

years, especially if it’s within the period during 

which they’re paying the fixed rate, there’s the 

added appeal of paying less now and not having 

to worry about what might happen when the  

adjustable period begins. In fact, the typical  

mortgage lasts only about seven years. Then  

the borrower moves or refinances and pays off 

the balance. 



You always know your loan 

costs, so you can plan your 

budget more easily


Your mortgage won’t increase 

if interest rates go up



Initial rates and closing costs 

are higher than for ARMs


Your monthly payments may 

be larger than with ARMs


You won’t benefit if interest 

rates drop, but have to re-

finance to get the lower rates

Mortgage Rates

Mortgages can have either fixed or adjustable rates, or 

sometimes a combination of the two.