A fixed interest rate mortgage carries several advantages over a variable rate or capped mortgage. First among these is a guaranteed locked-in interest rate that can never change for the life of your term. The advantage of this is that you can save substantially if interest rates suddenly rise. On the other hand, you stand to lose money--at least on paper--if rates go the other direction.

Even if rates do plummet, there's another major advantage of the fixed interest rate mortgage that buffers you against your loss, and that's peace of mind. Like any other "intangible," peace of mind does come with a specific value. You may not be able to name it precisely, but it's determined by your behavior as a rational consumer. To get an idea of what your peace of mind is worth, consider how much additional money you'd be willing to pay for guarantees of stability and safety.

More Advantages of the Fixed Interest Rate Mortgage

Another benefit of the fixed rate mortgage is the ease with which it may be budgeted. If you've got a slew of other expenses and are just making ends meet month to month, one minor fluctuation in your costs can throw off all your finances. With a fixed rate payment, however, you know precisely how much to enter into your ledger each month, regardless of the market's capriciousness.

One thing to be cautious of with your fixed rate mortgage, however, is redemption penalties. You may think paying off your mortgage in full is a good thing, but not if you're a lender who's banking on the interest payments you'll make for the rest of your term. You may decide, on the other hand, that it's worth incurring a penalty for your financial freedom. Just as peace of mind comes with a price tag, so too does long-term financial commitment.