Finance Dictionary
Fixed Rate
Definition
An interest rate on a liability, such as a loan or mortgage, that remains the same either for the entire term of the loan or for part of the term.
Deep Dive
A fixed rate refers to an interest rate on a financial liability, such as a loan or mortgage, that remains constant and unchanging for a predetermined period, often for the entire duration of the loan. This stability provides borrowers with predictable, consistent monthly payments, which greatly aids in personal or business budgeting and financial planning. Unlike variable rates that fluctuate with market conditions, a fixed rate locks in a specific cost of borrowing, offering protection against potential interest rate hikes over time.
Examples & Use Cases
- 1A homeowner secures a 30-year fixed-rate mortgage, ensuring their principal and interest payments remain the same for three decades
- 2A business takes out a fixed-rate loan to finance new equipment, knowing their monthly payments won't change
- 3An investor buys a bond with a fixed coupon rate, guaranteeing a consistent interest payment until maturity
Related Terms
Variable RateInterest RateAmortization