What does the term 'fixed rate mortgage' refer to?

The term 'fixed rate mortgage' refers to a mortgage in which the interest rate remains constant throughout the entire term of the loan. This means that the borrower's monthly payments are predictable and do not change, providing financial stability and ease of budgeting. Homeowners often favor fixed rate mortgages because they protect against interest rate fluctuations in the market; even if rates increase over time, the borrower’s rate and payment remain the same.

The other choices do not accurately describe the characteristics of a fixed rate mortgage. Fluctuating interest rates are associated with variable or adjustable rate mortgages, while the ability to prepay without penalties may pertain to certain types of loans but is not a defining characteristic of fixed rate mortgages. Additionally, the interest rate being lower than that of variable rate mortgages is not universally true, as fixed rate mortgages can sometimes have higher rates than variable rate options, depending on market conditions.