Fixed rate

Definition

A rate that does not change during the term, so the payment is the same from the first month of the agreement to the last. Stability has two trade-offs: the starting rate is often a little higher than a variable one, and the exit penalty is calculated on the interest rate differential, which can be heavy if rates have fallen since signing. Example: 4.8% fixed for five years. If rates drop to 3.5% two years later, your payment does not move, but breaking the agreement to take advantage can cost several thousand dollars. So compare a fixed rate on three things: the rate, the penalty method, and the prepayment privileges, which let you reduce the balance without charge up to a certain percentage per year.