Common Mortgage Types - Fixed Rate mortgage
Unlike an adjustable rate mortgage, in which the interest rate fluctuates over time, a fixed rate mortgage offers a locked-in interest rate from the beginning to the end of the loan term. This means you will pay the same amount every month over the life of the loan. If interest rates go up over that period of time, you're at an advantage because you will continue to pay the same rate as when you first obtained the mortgage loan. Fixed rate mortgages work well for borrowers who have a steady source of income and plan to keep the same mortgage for seven years or more.
But if the prevailing market rate drops dramatically during your loan term, you may decide to take advantage of the lower interest rate by refinancing your loan. Be aware, however, that refinancing involves many of the same costs as obtaining an original mortgage, so it can take several years to re-coup those costs, even with the lower rate.