Adjustable-Rate or Fixed-Rate Mortgages

Whether you are purchasing a home for the first time or the fifth time, it’s important to understand where all of your money will be going and how to discuss mortgage rates with lenders. We’ve broken down adjustable-rate mortgages (ARM) and fixed-rate mortgages (FRM) to help you in the process.


FRM: First, you need to understand what each of these types of loans is. An FRM means you are locked into a mortgage rate for the duration of the loan period. This has pros and cons. It’s good because your lender can’t increase your rate, thus increasing your monthly payments. However, you also can’t lower your monthly payment without refinancing and extending your loan period.


ARM: These types of mortgages usually start out with a smaller rate and lower monthly payments. However, there are pros and cons to this as well. Having a lower rate means you can afford to purchase a larger or more expensive house than with an FRM sometimes, and enjoy lower payments. Sometimes rates can even fall during the duration of the loan, but it’s also a risk because the rate isn’t locked in and could have the potential to rise significantly over the life of the loan. For example if someone were to purchase a home with an ARM starting at 5% it could end up become 12% by the time they pay it off, or even in as little time as 2 years after purchase depending on the housing market. The risk is what the buyer can afford to pay in the future if the rate goes up, however, refinancing isn’t always needed to get the loan rate back down. Sometimes the national average fluctuates and becomes lower so while those with FRM are refinancing, those with an ARM can sit back and watch rates fall.

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