When customers avail a loan, the rate of interest that they are expected to pay varies from time to time. For example, the rate that customers will have to pay while repaying their mortgage depends on the rate that is set by the central bank of a country. Therefore economic conditions can alter the rate of interest that one will have to pay.

However, in a fixed-rate mortgage, borrowers are expected to pay only a fixed rate as interest for a mortgage repayment. The interest rate of such mortgages does not change for a fixed period of time. This means that the customer is not expected to pay more if the interest rate in the country increases. Similarly, he or she should not expect lower interest rates even if the mortgage interest rate in the country falls. In fixed-rate mortgages, the interest rate on the mortgage is guaranteed to remain the same.

Most lenders offer fixed rates for one to ten years. It may be very useful for borrowers who needs to plan ahead and do not want interest hikes to affect their finances. While availing such a loan, one can be sure about the amount that one needs to repay each month. In the case of adjustable-rate mortgages, one needs to prepare for a repayment as per the changes in the interest rates that are applied by the government from time to time.

Lenders run a risk when they issue a fixed-rate mortgage. This is because they will not be able to capitalise on higher interest rates if the government hikes interest rates. Hence, fixed-rate mortgages carry higher interest rates. Similarly, interest on long duration fixed-rate mortgages will be higher than the interest on short-term fixed-rate mortgages. Some lenders will provide a mortgage that allows overpayments. Others will allow only a certain number of overpayments a year.