Is a fixed or adjustable rate mortgage right for you? Let’s take a look at the pros and cons…
A fixed rate mortgage has the same interest rate and monthly payment the entire term of the loan – which is usually 15 or 30 years. If rates rise, the borrower is protected against an increase. Fixed rate mortgages make budgeting easier since they offer stable monthly payments.
An adjustable rate mortgage (or “ARM”) features lower rates early on in the loan, but these rates can be adjusted in the future as stated in the mortgage agreement. An ARM offers a lower initial monthly payment to the borrower, which is a benefit if you don’t plan on living in the home for an extended period. That said, with an ARM, monthly payments can go up.
Before choosing, ask yourself these questions…
- What is the future outlook for interest rates?
- How long do you expect to stay in the home?
- If interest rates rise, can you afford a higher monthly payment?
If you have any questions, ask your lender! And always make sure you clearly understand all the terms and conditions of whichever loan you choose.