Deciding between a fixed rate or adjustable rate mortgage can be daunting. Learning the difference between these two types of loan terms can help you make the best decision. When in doubt, a fixed rate mortgage is the safest bet. However, adjustable rate mortgages can provide flexibility and financial benefits.
Fixed rate mortgages have the same fixed interest rate for the entire term of the loan. The loan term is the amount of time you have to repay the loan. Loan terms can range from 8 years to 30 years. A 30 year mortgage is the most common.
Adjustable Rate Mortgages (ARMs) mean the interest rate on the mortgage can change during the loan term. Most ARMs offer a low introductory interest rate that is fixed for a certain period. The fixed period on ARMs is usually between 5 and 10 years. After the fixed period, the interest rate changes. Changes in the interest rate will directly affect your monthly mortgage payment. The full loan term on ARMs is typically 30 years.
Ultimately whether a fixed mortgage or an ARM is better for you depends on your scenario as well as your financial goals and current market pricing. A One True Loan advisor would be happy to help you compare options so you can decide which works best for you.