When it comes to mortgages, there are two main types of loans: fixed-rate and adjustable-rate. The primary difference between the two is that a fixed-rate mortgage has an interest rate that remains the same throughout the life of the loan, while an adjustable-rate mortgage (ARM) has an interest rate that can fluctuate. With a fixed-rate mortgage, the interest rate is set when the loan is taken out and will not change. This means that your monthly mortgage payment will remain the same for the entire term of the loan.
On the other hand, with an ARM, the interest rate can go up or down, which means that your monthly payment can also change. The initial interest rate of an ARM is generally lower than that of a comparable fixed-rate mortgage. However, after the fixed-rate period is over, your interest rate will be adjusted up or down based on an index such as the London Interbank Supply Rate (LIBOR). This means that you could be exposed to huge adjustments in rates or payments if the index rises or falls.
A 15-year fixed-rate mortgage typically has a lower interest rate than an ARM, allowing borrowers to pay off their mortgage in half the time and save thousands of dollars over the life of the loan. Plus, you'll never be exposed to huge adjustments in rates or payments because you'll be moving before the adjustable rate period begins. When deciding between a fixed-rate and adjustable-rate mortgage, it's important to consider your financial situation and credit rating. Lenders will look at these factors to determine the length of the loan, the interest rate and the amount of the loan.
It's also important to compare prices and get pre-approval from at least three lenders to compare offers. If you plan on staying in your home for a long time and want to be certain of a stable interest rate and monthly payment, then a fixed-rate mortgage may be best for you. However, if rates drop or your home appreciates significantly within a few years of starting the mortgage, you can always consider refinancing it with another fixed-rate mortgage at a lower rate.