Selecting a mortgage that fits your financial needs is key when beginning the homeownership process. There are two mortgage interest rate options that will impact your monthly payments: fixed-rate and adjustable-rate mortgage. We want to help you make an informed decision on which one to choose.
What is a fixed-rate mortgage?
A fixed rate is a type of mortgage with an interest rate that doesn’t change for the term of the mortgage. It protects the homeowner from experiencing any sudden interest rate increases. Your mortgage payment will be the same each month, although could rise or fall due to real estate taxes and homeowner insurance fluctuations.. The fixed-rate mortgage is best for the persons who like a consistent budget.
What is an adjustable-rate mortgage?
An adjustable-rate mortgage, also referred to as ARM, is a type of mortgage with an interest rate that can adjust after the fixed rate period depending on the margin and the index associated with the specific program. During the adjustment period the rate is determined by adding the margin to the index on the specific month that it adjusts.. An ARM has fixed periods of 1, 3, 5, 7 or 10 and 15 years.
When should you choose a fixed-rate or an adjustable-rate mortgage?
Adjustable Rate Mortgages:
A buyer who understand the terms of how the loan can adjust and is comfortable with the payments if it were to adjust up or down.
Important terms of an ARM to understand:
- The frequency of adjustments during the term of the mortgage.
- The maximum amount that an interest rate can adjust to over the life of the loan.
- Buyers who prefer a consistent budget: This type of mortgage is ideal for anyone who is looking for a constant monthly payment. The monthly payment and interest rate will remain the same for the full duration of the loan.
- Buyers who want to have a plan. They want to see a consistent decrease in their principal balance. Fixed-rate mortgages also provide buyers with full insight on how much interest they will pay on their mortgage. There’s no guessing with fixed-rate mortgages.
Do all loan programs offer the option between a fixed-rate or an adjustable-rate?
We have many different loan programs that offer fixed-rate and adjustable-rate options. Our Loan Officers will explain which loan programs are compatible with each depending on which rate option works best for you.
Not sure which option is best for you? Leave it to us!
It can be overwhelming selecting a mortgage program. We can help! Our experienced loan officers are eager to understand your financial circumstances and explain which mortgage program will benefit you the most! Connect with a loan officer today to begin the process.
need more info about this topic?
We’re all about educating our buyers. If you’d like to talk to someone to get more information, or need additional resources, get in touch and we’ll connect you with someone with the knowledge to help.