Question: What’s the difference between an adjustable-rate mortgage and a fixed-rate mortgage?
Answer: Adjustable-rate mortgages have interest rates that may go up or down during the life of your loan. Fixed-rate mortgages have interest rates that are set and will not change.
Are you currently exploring your mortgage options during your home search or are you looking to refinance your existing mortgage? Get a free rate to explore your options or keep reading to learn more about these mortgage types.
Adjustable-rate mortgages typically start with lower interest rates than fixed-rate mortgages. This initial interest rate stays the same depending on what loan length term you choose or qualify for. Once this introductory period is over, the interest rate changes depending on the market. Most likely the interest rate will go up, but sometimes your payment may go down if interest rates decline. There is a maximum or “cap” on how high your interest rate can go. See the tips below for some key questions you should ask your mortgage advisor to learn if this is the right loan for you.
Are you selecting an ARM to take advantage of the initial lower interest rate? Great! Before taking out this mortgage, ask your mortgage advisor these questions.
- How high will my interest rate and monthly payments go with each adjustment?
- How frequently will my interest rate adjust?
- How soon will my payments go up?
- What is the cap on my interest rate?
- How low will my interest rate go?
- Should I refinance or move before my interest rate adjusts?
- Will I be able to afford the maximum monthly payment?
- How much money should I put down on the house?
According to the CFPB, you shouldn’t assume you can sell or refinance your loan before your interest rate changes. Your home’s value could decline or your financial situation may change. If you can’t afford the higher payments when your rate adjusts, you may want to consider a fixed-rate mortgage instead.
Fixed-rate mortgages have interest rates that are the same during the entire length of your home loan. Your payments will be consistent each month. vLoan offers conventional fixed-rate mortgages in 10-, 15-, 20- or 30-year terms. The term you choose may affect the interst rate you are offered, with shorter terms generally having lower interest rates. You will pay the least amount in interest with a 10-year term compared to a 30-year term. On the other side of the coin, your monthly payments will typically be highest with the 10-year term and the lowest with a 30-year fixed-rate conventional mortgage.
Here are questions you should ask your mortgage advisor to see if the fixed-rate mortgage is your perfect fit.
- What will my interest rate be?
- Should I refinance my current mortgage to a fixed-rate mortgage?
- What is my down payment requirement? (Some of our programs require no down payment)
- How much will my monthly payments be for each different term?