Fixed-rate or adjustable rate mortgage
Shopping for a mortgage can be confusing. There are different types of mortgages, different terms and repayment options, as well as associated fees. It can be a bit overwhelming for buyers, but generally, mortgages can be categorized into two types— fixed-rate and adjustable-rate mortgages (ARMs).
Typically, both fixed- and adjustable-rate mortgages offer terms from five to 30 years with rates increasing the longer you finance your loan. However, with a fixed-rate loan, the rate you receive will not change over the term of your loan regardless of whether interest rates go up or down. An adjustable rate mortgage will do just that after an initial fixed period expires — adjust up or down based on the current interest rate market.
How do I know which is right for me?
Some buyers find an adjustable-rate mortgage attractive because it is typically offered at a lower interest rate than a fixed-rate mortgage, which can mean a smaller monthly payment. However, depending on the type of ARM you have, your rate may increase several times over your loan term. With each rate increase, your payment may also increase.
ARMs typically have a fixed rate for a portion of the mortgage term, such as five or seven years, with a rate adjustment each year thereafter. These loans can be attractive to homebuyers who expect to live in their home a very short period, refinance before the fixed-rate term ends, or flip the home for investment purposes.
Due to the unpredictability of market rates, most buyers choose the fixed-rate option. The fixed rate makes budgeting easy and predictable, and provides buyers with a fixed monthly principal and interest payment.
Still have questions about which loan is right for you? Contact an APGFCU home loan specialist for a one-on-one review of your home-buying needs. Call us today at 888-LOAN-391.
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