What is Fixed Income?
The term fixed income can have several meanings. One of the most common definitions is that it is a stable and constant rate on a particular investment. An example is when an individual purchased bonds and obtains an unchanging rate of income from these bonds. Generally, this is a low rate of interest on the bonds that were purchased, but it is also a secured rate of return. Basically, any type of investment which has a secured and constant rate of return is considered as a fixed income.
In most cases, when people hear the term fixed income, pension payment or other social security income that is set to a certain amount is what comes to their mind. When people say that they are on a fixed income, what they usually mean is that they do not work or make additional investments, and receives only their social security income or pension. Because of this, their income does not increase or decrease.
Reverse fixed income is another type of fixed income, which occurs when a person borrows money and promises the lender that he will pay a specific amount every month or at another regular schedule. Unless re-negotiated, the amount that the individual must pay for the loan is fixed to a particular amount. Aside from having a fixed payment amount, this also involves a promise from the individual to pay the price as required.
A fixed interest rate for a house mortgage is an example of this, and is considered to be an investment. When an individual is paying the principle and the interest every month for his home loan, it is possible for him to keep a portion as long as the real estate prices remain at a constant level or become higher. Although he is the one who is paying and securing the loan, it can still be considered as an investment, which can help him during his retirement when he just have a fixed income. The person may opt to sell the house or mortgage in order to increase his income.