Fixed Rate vs. ARM Mortgage
Wondering what the difference is between a Fixed Rate Mortgage and an Adjustable Rate Mortgage? Check out our latest Get Mortgage Fit video. There are different benefits to each one, and this quick video can help you decide which one might be the better choice for you. Also, visit our mortgage calculator page.
Fixed Rate vs. ARM Mortgage Video transcript
We try and stay healthy and fit in our everyday lives so why wouldn't your mortgage fitness be important as well? Learn more about mortgage terms, loan programs, and steps during the loan process for purchasing or refinancing your home. Come on let's get mortgage fit!Hi, I'm Courtney Lynch from New American Funding.
Have you ever wondered what the difference between these two mortgages is? Well, you're not alone. Today we're going to cover the basics so you're familiar with each and you know how to choose which option is best for you. So, let's get started.
With the fixed-rate mortgage, you keep the same interest rate for the life of the loan. In other words, your interest rate is fixed when you take out your loan and it will not change. It stays the same whether your loan is 10, 20 or 30 years. There are lots of benefits to a fixed rate mortgage. It offers you the security of knowing what your monthly mortgage payment is and it's not going to change. There aren't any surprises even if there are changes in the economy. That means you can better plan for your financial future like sending your kids off to college, taking that vacation or building your savings account.
On the other hand, with an adjustable rate mortgage the interest rate may go up or down. The initial rate starts lower, but it can adjust periodically. And when the interest rate drops your payment usually goes down. It all depends on the terms of the loan. Your loan starts with an initial interest rate and payment amount that typically lasts for a limited period, such as one month or 5 years. After the initial period is over your interest rate will adjust periodically like every month, every quarter or every year depending on your loan terms. Most adjustable rate mortgages limit how much your interest rate can increase with each adjustment and will usually put a cap on how high your interest rate can go over the life of the loan. So, with an adjustable rate mortgage it's a trade-off you get a lower initial rate in the beginning in exchange for taking on more risk in the long run.
If you're planning to stay in your home long term, then a fixed rate mortgage might be the best way to go. But if you're planning to stay less than 5 years then an adjustable rate mortgage might work better. Your New American Funding loan officer will be able to guide you through the process of identifying which option is right for your financial future. Thanks for watching this episode of Get Mortgage Fit and keep watching our series to improve your mortgage health.