What is the difference between a fixed-rate and adjustable-rate mortgage?
Fixed-rate mortgages feature a steady interest rate, which is determined when you are approved for a mortgage. This rate remains the same for the entire term of the loan. With adjustable-rate mortgages (ARMs), the interest rate may vary over the life of the loan. Typically, the interest rate is lower the first year, and then adjusts at predetermined intervals. This means your payments will change as well.
A. Fixed rate mortgages feature an unchanging interest rate, which is determined when you are approved for a mortgage and remains the same for the term of the loan. With adjustable-rate mortgages (ARMs) the interest rate may vary over the course of the loan. Typically, the interest rate is lower the first year, then increases at predetermined intervals. This means your payments increase as well.
With a fixed rate mortgage, the interest rate and payment remains constant over the life of the loan. Whereas, with an adjustable rate mortgage, the interest rate can either increase or decrease, based upon the terms of the loan. This could cause the monthly payments to increase in order to have the loan paid in full by maturity.
A fixed rate mortgage provides a rate of interest that remains the same for the life of the loan. An adjustable (or variable) rate mortgage (ARM) has an interest rate that adjusts periodically on the basis of changes in a specified financial index. Typically, adjustable rate mortgages start out at somewhat lower rates than fixed rate mortgages. They can fluctuate up, raising the monthly payment, or down, lowering the monthly payment, depending on the activity of the index to which they are tied. Our loan consultants can discuss the advantages of both types of mortgages to help you decide which product is best for you.
