One of the important decisions you’ll have to make when buying a home is choosing between a fixed-rate mortgage and an adjustable-rate mortgage. While both types of mortgages have benefits, they also have shortcomings that you must consider before making a choice.
In this article ,Anew Lending Mortgage explains the differences between fixed-rate mortgages and ARM to help you make informed decisions.
What is a Fixed Rate Mortgage?
A fixed-rate mortgage is a loan whose interest rate remains unchanged throughout the loan’s term. These are the most common types of mortgage loans because of their simplicity and straightforwardness.
Fixed-rate mortgages usually last between 10 to 30 years, with the most common being 30-year mortgages. Since the interest rate on your loan remains unchanged, your monthly payment will also stay the same throughout the loan term, allowing you to enjoy stability in your planning and budgeting.
What is Adjustable Rate Mortgage?
As the name implies, an adjustable-rate mortgage is a type of mortgage where the interest rates fluctuate at different intervals during the lifespan of the loan.
Adjustable rate mortgages usually start with a low introductory rate, usually lower than fixed rates, which last for a couple of weeks or years. When the introductory state is over, the interest rate can be reduced or increased, depending on the state of the market.
This type of mortgage is perfect if you only want to own the house for a short period. That way, you can take advantage of the introductory rate and sell the house when the rate has increased.
Differences Between Fixed Rates and ARM
1. Monthly Payment
The monthly payment stays the same for fixed rates throughout the loan term. With ARM, the monthly payments change as the interest rate fluctuates.
2. Risk Factor
Fixed-rate loans are less risky since the interest rate and monthly payments remain the same till you finish paying the loan. Meanwhile, ARM is unstable, and the rate can increase over time, making it more risky.
3. Interest Rates
At the initial stage, fixed-rate loans usually have a higher rate than ARM. However, after the introductory phase, ARM interest rates may rise higher than fixed rates.
About Anew Lending
Anew Lending is a full-service mortgage company in Sacramento, CA, providing flexible and accessible loans to buy or refinance your homes.
They have a team of experienced real estate professionals available to evaluate your needs and choices and help you get the best loans at the best rates. For inquiries about their services, call Anew Lending at 916-655-9381 or visit their website.
