When you’re shopping for a mortgage, one of the first decisions you’ll need to make is whether to choose a fixed-rate mortgage (FRM) or an adjustable-rate mortgage (ARM). Both loan types have their pros and cons, and the right choice depends on your financial situation, future plans, and risk tolerance. Let’s break down the differences to help you decide which option fits you best.
What is a Fixed-Rate Mortgage (FRM)?A fixed-rate mortgage locks in your interest rate for the entire life of the loan. Whether you choose a 15-year or 30-year term, your monthly principal and interest payments will stay the same, providing stability and predictability.
Advantages:
- Predictable Payments: Your mortgage payment won’t change, which helps with budgeting.
- Long-Term Stability: Ideal if you plan to stay in your home for many years.
- Protection Against Rising Rates: Even if market rates climb, your rate stays the same.
Considerations:
- Higher Initial Rates: Fixed rates are typically higher than the initial rate on an ARM.
- Less Flexibility: If rates fall, you’d need to refinance to take advantage.
What is an Adjustable-Rate Mortgage (ARM)?An adjustable-rate mortgage typically offers a lower initial interest rate for a set period (e.g., 5, 7, or 10 years). After that, the rate adjusts periodically based on market conditions.
Advantages:
- Lower Initial Rates: Great for short-term savings.
- Potential for Decrease: Your rate could go down if interest rates fall.
- Ideal for Short-Term Homeowners: If you plan to move or refinance before the adjustment period, you could save significantly.
Considerations:
- Rate Uncertainty: After the initial period, your rate and payment could increase.
- Complex Terms: It’s important to understand caps, margins, and adjustment schedules.
Which One is Right for You?
- Choose a Fixed-Rate Mortgage if you value payment stability, plan to stay in your home long-term, or are worried about rising interest rates.
- Choose an Adjustable-Rate Mortgage if you plan to sell or refinance within a few years, are comfortable with some level of risk, or want a lower initial payment.
Still Unsure? Let’s Talk!At Oakdale Mortgage, we’re here to help you weigh your options and choose the mortgage that’s right for you. Reach out to our experienced team today and let’s find the best path to your homeownership goals.
