Fixed Rate
-Know that your rate will not increase for the term of the loan…
-Long-term ownership, this is your loan!
-Plan to own more than 7 years
Can’t see moving in the foreseeable future?
A fixed rate loan is in your best interest. The rates are still historically low! Lock the interest rate for the life of the loan. If rates rise in the future, your rate will remain the same, so you will be protected from the uncertainty of the future.
ARM vs Fixed Rate
A Fixed-Rate Mortgage or Fixed Rate Loan applies the same interest rate toward monthly loan payments for the life of the loan. They are more secure for the buyer however, since the lender takes a higher risk, fixed-rate mortgages generally have higher interest rates than ARM mortgages.
Fixed-Rate Loan benefits include:
No change in monthly principal and interest payments regardless of fluctuations in interest rates
More stability may give you “peace-of-mind”
Fixed-Rate Loan disadvantages include:
Higher initial monthly payments compared to those of adjustable rate mortgages
Less flexibility
An adjustable rate mortgage, which may also qualify as a second mortgage loan, does not apply the same interest rate toward monthly payments for the life of the loan. Throughout the life of that loan, the homebuyer’s principal and interest payment for adjustable rate mortgage loans will adjust periodically based on fluctuations in the market interest rates.
ARM Mortgage benefits include:
Initial payments lower due to lower beginning interest rate, sometimes up to 2 percent below the fixed rate
Ability to qualify for a higher loan amount due to lower initial interest rates
Lower interest payments if the interest rate drops over time
Interest rate caps limit the maximum interest payment allowed for the loan
ARM Mortgage disadvantages include:
Initial lower interest rate and monthly payments are temporary and apply to the first adjustment period. Typically, the interest rate will rise after the initial adjustment period.
Higher interest payments if the interest rate rises over time.