What's the difference?
Adjustable-Rate Mortgage (ARM)
An adjustable rate mortgage (ARM) is a type of loan with an interest rate that varies depending on how market rates move. When you sign up for an ARM, you first get a short period of fixed interest. This is the introductory period of the loan and can last for up to 10 years.
During your introductory period, your interest rate is usually lower than what you’d get with a fixed-rate loan
During your introductory period, your interest rate is usually lower than what you’d get with a fixed-rate loan. After the introductory period expires, your interest rate will follow market interest rates – you’ll often see this referred to as a variable or floating interest rate. ARMs have caps in place that limit the total amount that your interest can rise or fall over the course of your loan.
Fixed-Rate Mortgage
A fixed-rate mortgage has the same interest rate throughout the term of the loan.
A fixed rate loan reduces a major source of uncertainty because your interest rate remains the same during the life of the loan.
Homeowners who choose a fixed-rate term often believe that rates will rise over the course of their loan and want the stability and predictability this type of loan provides.
So which one is for me?
For most people, purchasing a home to live in is one of the most important transactions they’ll ever make. The process can be emotional and things can get confusing and overwhelming.
A fixed rate loan reduces a major source of uncertainty because your interest rate remains the same during the life of the loan. Often these loans last long periods of time and offer the lowest possible monthly payments over the life of the loan.
That said, there may be situations where an Adjustable Rate Mortgage (ARM) is the right choice.
Our mortgage loan originators will ask you all the right questions to determine what pathway is best for you. Schedule a consultation today!
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