What are the advantages and disadvantages of fixed rate and adjustable rate mortgages?
Most home loans fall into one of two general categories: fixed-rate mortgages and adjustable rate mortgages (ARMs).
Fixed-rate mortgages have interest rates that stay the same for the entire loan term.
- You will have predictable monthly payments throughout the life of the loan.
- You’ll be protected from rising rates.
- Fixed-rate loans can be a good refinance option when rates are low.
Adjustable-rate mortgages have interest rates that adjust periodically based on market conditions.
- The initial rate is fixed for an introductory period (usually one to ten years), and is typically lower than for a fixed-rate mortgage.
- After that the rate adjusts annually or semi-annually depending on the product and based on a market index, but can’t go above a predetermined adjustment cap.
