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What is the difference between a Fixed Rate Mortgage and an Adjustable Rate Mortgage (ARM)?

April 26, 2017adjustable rate mortgage arm fixed rate mortgage

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What is the difference between a Fixed Rate Mortgage and an Adjustable Rate Mortgage (ARM)?

3 Answers

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The interest rate on a Fixed Rate Mortgage stays the same over the life of the loan. The rate on an Adjustable Rate Mortgage changes or adjusts after a specific time period. For example, the interest rate on a 30 year fixed mortgage will stay the same for 30 years, while the interest rate on a 3 year ARM will stay the same for 3 years, and then will adjust afterwards. Both Fixed Rate and Adjustable Rate mortgages can have Full Amortizing or Interest Only payment structures.

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With a fixed rate mortgage, your interest rate remains constant for the life of the loan. Many fixed rate mortgages are 15-year or 30-year loans, but other terms are available. The interest rate on an ARM fluctuates according to an index and a margin agreed to in advance by the borrower and lender.

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With a fixed-rate mortgage, the interest rate stays the same for the life of the loan. ARMs allow the lender to periodically change the interest rate, usually in relation to a published index that reflects the interest currently earned by investments such as Treasury bills, notes, and bonds.