Learning the nuances of mortgages can be daunting, particularly when buying a home for the first time. While there are many other factors to consider, one of the key decisions you have to make is whether to go with a fixed- or adjustable-rate mortgage loan.
This post will discuss the differences between ARM and fixed-rate mortgages to help you make an informed decision when buying.
Fixed vs. adjustable rate mortgages
When buying a home, you’re likely to take out a mortgage to finance your purchase. While the name is betraying, a mortgage is a loan to buy a home and carries an interest determined by the lender. To determine the interest you will pay, you will choose between the two types of mortgages.
So, how do the two compare?
The primary difference between a fixed-rate mortgage and an ARM is how the interest works. With a fixed-rate mortgage, your interest remains the same throughout the entire life of your loan, whereas ARM rates tend to change over time. Although many homebuyers gravitate toward the traditional fixed-rate mortgages, you can get a lower initial interest rate and a term that matches your needs with an adjustable-rate mortgage.
Bottom line: Which is right for you
Now that you know the difference between an ARM and a fixed-rate mortgage, an important question comes in: which should you choose? The answer to whether to choose a fixed-rate mortgage or an ARM ultimately depends on your current needs, income, and future goals. Although ARMs can be a powerful tool for home buyers with shorter-term goals, fixed-rate loans allow for easy budgeting. Because you can’t predict the future with 100% certainty, talking with your lending specialist will help you make a better decision.