Fixed vs. Adjustable Mortgage Rates

Should I Utilize a Fixed-Rate Mortgage or an ARM?

Over the past decade, fixed-rate mortgages have ruled the housing market. Interest rates have been extremely low, and it made perfect financial sense for households to utilize a fixed-rate mortgage. Fixed-rate mortgages operate exactly how they sound – they have a fixed interest rate for the life of the loan. Borrowers can often refinance these loans to a more competitive interest rate should market interest rates come down.

ARM stands for adjustable-rate mortgage. These mortgages contain a floating interest rate that changes with the market interest rate set by the Federal Reserve. ARMs are often fixed for a few years, and then the rate goes up or down annually after that. If the rate increases, the payment will increase to compensate for the higher interest due each month. It’s also possible that the payment will remain the same, but a higher portion of that payment will be directed towards interest. If this is the case, the loan will be stretched out for a longer term.

When determining the proper mortgage for your situation, make sure to reach out to your financial planner and lender. They can help you to review all options and implement the most efficient option for your household.

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Miranda Power