Comparing Fixed vs. Adjustable Rate Mortgages

Fixed vs. Adjustable Rate Mortgage

• Rate stays the same for the life of the loan. The loan term could be 15, 30, even 50 years and the rate will never change.
• Can always count on payments. There are no surprises. What you pay today is what you’ll pay 15 years from now.
• Simplistic terms. Unlike an ARM, a fixed rate is very straightforward and appeals to less sophisticated borrowers.

• Rates are lower than their fixed counterparts resulting in lower initial payments
• If interest rates are better when the loan is due to adjust, your rate could lower and you don’t have to pay fees to refinance.
• Short-term affordability. If you don’t plan on staying in one place for long, an ARM will save you money with it’s lower initial rates.

• Rates can be prohibitive. Some borrowers need a lower interest rate to afford monthly payments. Fixed rates are always going to be higher in the beginning.
• Better future rates mean refinancing. Refinancing means closing costs meaning that to take advantage of better rates, it will cost you a few thousand dollars.
• Standardized loans. There’s not much flexibility with a fixed rate whereas an ARM can be customized to fit a specific need.

• It’s risky business with an adjustable rate mortgage and the rate will probably increase over time. It’s actually conceivable that a rate could double after adjusting.
• It’s pretty certain that the adjusted rate will be higher than current fixed rates because you were given an artificially low rate to start.
• They are confusing. ARMs have a lot more variables that can easily be misunderstood.