Fixed Rate vs. Adjustable Rate Mortgage
If you're in a position to buy a home or refinance an existing mortgage, you'll find that home loans fall into one of two categories: fixed or adjustable rate mortgages (ARMs). The type you choose will determine your repayment amount and term length.
Understanding the advantages and disadvantages of fixed rate vs. ARMs will help you make the most informed decision.
Fixed Rate Mortgages
• Consistent rates and payments throughout the term of your mortgage.
• Stability makes the rest of your budgeting easier.
• Easier to understand, can be more approachable for first-time homeowners.
• Won't get the benefit of lowered interest rates without costly refinancing.
• Potential to be more expensive in the long run.
• Not customizable, fixed rate mortgages are essentially the same across the board.
Adjustable Rate Mortgages (ARMs)
• Lower rates, especially early on in the lending term.
• Borrowers can benefit from low interest rates without costly refinancing.
• Benefits homeowners who don't plan on staying in their home for a long time.
• Interest rate may fluctuate and rise significantly over the life of the loan.
• ARMs can be difficult to understand, especially for first time borrowers.
Regardless of the type of mortgage you choose when buying or refinancing your home, it's important to thoroughly weigh your options and consult with a trusted financial advisor. Visit the Online Mortgage Center to learn more about the mortgage process.