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Fixed and Adjustable Rates

One of the most important decisions you face when purchasing or refinancing a home is whether to take out a fixed or adjustable rate mortgage; so how do they differ?

A fixed rate mortgage locks your interest rate to protect you from future rate increases. Once you close on your loan, no matter what happens to interest rates or inflation, your monthly principal and interest payment will stay the same throughout the life of your loan. That stability is one reason why fixed rate mortgages are the most popular way to finance a home in America. Fixed rate payment terms range anywhere from 15 to 40 years.

The mortgage payment for an adjustable rate mortgage, on the other hand, can change over time, since it continually adjusts based on current interest rates. That is good for lenders, because the rate keeps up with the prevailing rate. As a result, adjustable rate mortgages typically start at a lower interest rate than fixed mortgages do, so your initial monthly principal and interest payments will be lower.

So, what are the advantages of an adjustable rate mortgage? Well, it depends. If you are considering an adjustable rate mortgage you should be able to answer yes to the following questions:

• Can I afford to make higher mortgage payments if rates go up?
• Do I believe that rates will remain the same or decline in the future?
• Do I plan on moving within 5-7 years?
• It is important to weigh all options when you are deciding which loan is best for you. We recommend a no-obligation meeting with our Mortgage Lending Specialist to answer any questions you may have.