What is the difference between a fixed-rate mortgage and an adjustable-rate mortgage?
Curious about Mortgages
A fixedrate mortgage is a type of home loan where the interest rate remains the same for the entire life of the loan. This means that the borrower's monthly payment will remain constant, making it easier to budget for the loan over time. Fixedrate mortgages are available in a variety of terms, typically ranging from 10 to 30 years.
In contrast, an adjustablerate mortgage (ARM) is a type of home loan where the interest rate can change over time. ARMs usually start with a fixed rate for a set period of time, such as five or seven years, and then adjust annually based on a predetermined index. This means that the borrower's monthly payment can change over time, which can make budgeting more challenging.
The benefit of an ARM is that the initial interest rate is often lower than that of a fixedrate mortgage, which can make it more affordable for borrowers in the short term. However, if interest rates rise, so will the borrower's monthly payments. Therefore, an ARM can be riskier than a fixedrate mortgage, but may be a good choice for borrowers who plan to sell or refinance their home before the rate adjusts.