What is the difference between a fixed-rate and an adjustable-rate mortgage?

When choosing a mortgage, one of the key decisions you'll need to make is whether to opt for a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Understanding the differences between these two types of mortgages can help you make an informed decision based on your financial situation and long-term plans.

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Fixed-Rate Mortgage

A fixed-rate mortgage has an interest rate that remains the same for the entire term of the loan. This means that your monthly mortgage payments (principal and interest) will remain constant throughout the life of the loan, providing predictability and stability.

Key Features of Fixed-Rate Mortgages:

Pros of Fixed-Rate Mortgages:

Cons of Fixed-Rate Mortgages:

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage (ARM) has an interest rate that can change periodically based on an index, which reflects the cost to the lender of borrowing on the credit markets. ARMs typically start with a lower initial interest rate than fixed-rate mortgages, which can make them attractive to some borrowers.

Key Features of Adjustable-Rate Mortgages:

Pros of Adjustable-Rate Mortgages:

Cons of Adjustable-Rate Mortgages:

The choice between a fixed-rate mortgage and an adjustable-rate mortgage depends on your financial situation, risk tolerance, and long-term plans. Fixed-rate mortgages offer stability and predictability, making them a good choice for those who plan to stay in their home for a long time and prefer consistent payments. Adjustable-rate mortgages may be suitable for those who plan to sell or refinance before the initial fixed period ends, or who are comfortable with the potential for fluctuating payments. Carefully consider the pros and cons of each option and consult with a mortgage professional to determine the best fit for your needs.

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