ARM vs. Fixed-Rate

Published on May 13th, 2015

ARM or Fixed-Rate Mortgage: Which is best for you?

When shopping for a home, buyers are also shopping for the loan program that best suits their needs. With so many loan types to choose from and so many factors to compare, this financial part of the process can be overwhelming. Where will you be in five years? How long do you really plan to stay in the home? Are the risks of one program, worth the rewards? Can you even answer these questions? We get it – buying a home can be daunting. Before you get bogged down in trying to predict your future, let’s start with one major question: Do you want a fixed-rate mortgage or an adjustable-rate mortgage?

Fixed-Rate Mortgage

As the name suggests, this mortgage keeps a consistent interest rate over an allotted period of time. The most popular option for this loan program is the 30-year fixed-rate mortgage. This normally falls under a conventional loan and provides a constant interest rate for the life of the loan. Fixed-rate mortgages also come in a 15-year option. If you plan to stay in your new home for at least seven years, the major benefit of a fixed-rate mortgage is:

  • You have a constant interest rate, meaning your monthly mortgage payment will stay the same through the whole life of the loan.

Adjustable-Rate Mortgage

An Adjustable-Rate Mortgage (ARM) is best for buyers who aren’t interested in predicting their future and who don’t plan to stay in their home for a long period of time. This mortgage allows you lock in a set interest rate for 3, 5, 7, or 10 years. The downside is, if you end up staying in the house for longer than the set period of time, then your interest rate will likely increase. Seen as a “riskier” choice, this loan program offers one major benefit:

  • It allows borrowers to buy a home (which is cheaper than renting), without foregoing the freedom of movement that renting offers.

While it’s clear the ARM option isn’t ideal for long-term homeowners, the “safer” choice of fixed-rate isn’t for everyone either. For those who are shopping around, trying to find the loan program that best suits your financial needs and future plans, the best place to start is by speaking with a qualified Loan Officer. A Loan Officers can sit down with you and help guide you down the best path for your finances and goals. Reach out to the Housing Buzz team today for more information! We’re here to help turn this often “daunting” situation into something more accessible by offering in-person education and guidance.

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