Fixed Rate vs Adjustable-Rate Mortgage
When financing a home, borrowers typically choose between a Fixed Rate Mortgage (FRM) and an Adjustable-Rate Mortgage (ARM). The right choice depends on your financial goals, risk tolerance, and how long you plan to stay in the home.
Fixed Rate Mortgage
The interest rate remains the same for the entire loan term (commonly 15, 20, or 30 years).
Advantages
- Predictable monthly principal and interest payments
- Protection from rising interest rates
- Easier budgeting and long-term financial planning
- Ideal for homeowners planning to stay in their home for many years
Disadvantages
- Typically starts with a higher interest rate than an ARM
- Less opportunity to benefit if market rates decline
- May require refinancing to obtain a lower rate
Best for...
- Long-term homeowners
- Buyers who value payment stability
- Risk-averse borrowers
Adjustable-Rate Mortgage (ARM)
The interest rate is fixed for an initial period (e.g., 5, 7, or 10 years), then adjusts periodically based on market conditions. Example: A 7/1 ARM has a fixed rate for 7 years and adjusts annually thereafter.
Advantages
- Lower initial interest rate than most fixed-rate mortgages
- Lower initial monthly payments
- Potential savings if rates remain stable or decrease
- Attractive for short-term homeownership
Disadvantages
- Payments can increase when rates adjust
- More difficult to predict future housing costs
- Interest rate risk over time
Best for...
- Buyers planning to move or refinance before the adjustment period ends
- Borrowers expecting income growth
- Homeowners comfortable with some risk
Ask These Questions when You’re House Hunting
When you are house hunting, there are important questions you should ask so you can determine if the spaces you are viewing will truly fit your needs, without you having to make costly changes after you move in.
Everything is not always as it seems. First impressions may be cosmetic and not be indicative of the true condition of a home.
When touring the main living area, ask what the flooring is like. Consider its age, appearance and maintenance requirements. Is new flooring going to be needed in the near future and do you have the budget for it?
Pay close attention to the number, size and placement of the windows. Is there enough light and airflow for the activities of you or your family? Check for any condensation between the window panes and how well they operate.
Since the kitchen gets a lot of use, it is important to ask how old and what condition the appliances are in. You need to know what appliances are included with the house sale. Answers to these inquiries will determine what appliances you may have to replace now and in the future.
The bathrooms serve many functions. It is important to find out if the toilet, sink and shower work properly. Is there any evidence of an excessive moisture condition that will be a problem later? Are the bathrooms well-vented?
When looking at the bedrooms, be sure and ask about closet and storage space. Will you have ample space to store your family’s stuff without having to add storage components to the house?
This newsletter and any information contained herein are intended for general informational purposes only and should not be construed as legal, financial or medical advice. The publisher takes great efforts to ensure the accuracy of information contained in this newsletter. However, we will not be responsible at any time for any errors or omissions or any damages, howsoever caused, that result from its use. Seek competent professional advice and/or legal counsel with respect to any matter discussed or published in this newsletter.