Which Mortgage Loan Is Best for You:
Fixed or Adjustable Rate?
Fixed Rate Loan
A fixed rate loan locks in an interest rate for the life of the loan. Various terms are available, usually 10, 15, 20, or 30 years1.
If you plan on living in your home for over 7 years, want to pay the same amount each month, and have a favorable interest rate, a fixed rate loan may be right for you. You may pay a higher interest rate than with the initial Adjustable Rate Mortgage (ARM), however, and if rates fall, you are locked into the original loan rate.
Adjustable Rate Loan
You can choose from many ARMs, but the most common offer a fixed rate for a period of time (usually five to ten years), after which the rate adjusts to the current market rate. Most ARMs offer a ceiling on how much the rate can be increased, but it is always best to budget for the highest possible rate cap for the future.
If you think your income will increase in the coming years, if you want to enjoy a lower monthly payment at the beginning of the loan, or if you plan on staying in your home for less than five years, an ARM may be the right choice. Keep in mind that if interest rates rise, your monthly payments go up too. If they stay high, you may end up paying more in interest than you would with a fixed rate loan.
To determine which loan option is best for you, please contact one of our mortgage loan consultants.
1With a 20% down payment, a $350,000 loan with a 6.75% interest rate (6.81% Annual Percentage Rate) (effective as of July 25, 2008) would have 360 monthly payments of $2270.09.
