If you’re in the market for a new home, you’re probably hearing a lot about rates. Before you get too caught up in the percentages, it’s important to know the difference between a fixed rate and an adjustable rate.
Fixed rate mortgages are exactly what they sound like—the interest rate is locked or “fixed” for the life of the loan and not subject to market conditions. This is great for budgeting, since your monthly housing payment won’t change over time.
Adjustable Rate Mortgages (a.k.a., ARMs) are loans that don’t have a fixed interest rate. You typically start out with a lower-than-market interest rate. Over time the interest rate adjusts according to the market. With an ARM, you need to take into consideration that you could end up paying a higher interest rate and housing payment over the years.
Deciding which type of rate is best for you can depend on a variety of factors. If you plan on staying in your home for a while or want the stability of predictable payments, a fixed rate mortgage could be your best option. If you’re planning to move in a few years or advance in your career, an adjustable rate mortgage could help you qualify for more home or provide a lower payment.
While no loan product is better than the other, make sure to discuss your goals and expectations with one of our home loans experts so they can help you find the program that best meets your needs.