April 20, 2023

What’s the Difference Between Fixed and Adjustable Rate Mortgages (ARMs)?

When shopping for a home, you may have heard it said the most important thing is “location, location, location.” That is vitally important, but these days, so “price, price, price.”


One of the biggest factors of price is your mortgage loan. Fixed and adjustable rate (or ARM) mortgages both have potential benefits, but they usually appeal to buyers with different needs. 


Fixed rate mortgages are appealing because they lock in both your interest rate and the monthly mortgage payments over the life of a loan. This offers both stability and comfort going into such a large investment. It makes overall family budgeting easier and serves well those who plan to be in the home for longer periods of time.


An adjustable rate mortgage starts with a fixed interest rate that lasts for a specific length of time (for example five years) called a term. When that term expires, the interest rate adjusts to the standard rate. 


Adjustable rate mortgages appeal to some buyers because they often offer a lower rate than fixed rate mortgages during that first term. The gamble is not knowing what the adjusted rate will be in the future. If it goes down, your monthly payment decreases. If it goes up, so does your payment.


If you only plan to be in your home a few years, that gamble goes away if you sell the home before your mortgage term expires. Your other option is refinancing your ARM to a fixed rate after your initial term, but there are costs involved, and there is no guarantee the rates will be lower when it’s time to refinance. 


When it comes to anything, including buying a home, you should work with what fits your budget and goals. Of course, we have loans and mortage experts available to help you decide which mortgage is best for you.

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