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Fixed-Rate vs. Adjustable-Rate Mortgages

There are a lot of decisions when it comes to buying a home. One of the most important choices (beyond which home to buy, of course) is what type of home loan you’re going to use to purchase that property.

There are numerous options that you can pick from, including a fixed-rate or adjustable-rate mortgage.

With a fixed-rate mortgage, the mortgage interest rate stays the same for the life of the loan. An adjustable-rate mortgage (ARM) is the opposite. The interest rate can and does change at certain points.

ARMs typically offer lower interest rates for an initial period of time, often five, seven, or 10 years, before the rate changes. Meanwhile fixed-rate mortgages allow for long-term financial planning. That’s because you’ll know your mortgage payment will stay the same for 15-30 years.

As for what type of loan is right for you, it depends on your situation.

“Ideally, someone that's looking for a fixed-rate loan is someone with a longer-term goal, someone that's planning to stay in the property for quite a while and maybe not refinance as often,” said Sergio Montalvo, sales trainer at New American Funding. “An adjustable-rate mortgage, ideally, is for someone that has shorter term goals.”