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The choice between a fixed rate and an
adjustable rate can be quite confusing. Hopefully this will help
make the decision easier:
rate mortgage is just that... fixed. What this means is
that your interest rate never changes through the life of your
loan. Which in turn means that your mortgage payment does not
change. There are no surprises and no uncertainty.
other hand, an adjustable-rate mortgage has an interest rate that
fluctuates. The interest rate typically adjusts every six to
twelve months, but it may change as often as every month. The
interest rates of this mortgage are determined by what's happening
overall with the economy.
are the pros and cons of each mortgage?
- Your mortgage payment and interest
rate is fixed.
- You will pay a premium (a higher
interest rate) so the lender will commit to lending you the
money for a fixed period of time.
- If interest rates fall
significantly, you maintain your current rate (unless refinancing is an option.)
- There are sometimes prepayment
penalties on fixed rate mortgages.
- An adjustable-rate mortgage starts
out at a lower interest rate and may allow you to qualify for a
higher loan amount.
- Your principal and interest
payments are lower.
- If your loan has no prepayment penalty you can refinance
into a fixed mortgage at a later time.
- It is difficult to budget your
bills because your mortgage may change month to
- If rates rise more than 1 or 2
percent and stay elevated, your adjustable-rate loan will
probably cost you more than a fixed-rate.
a specific mortgage term? Click Here to search our Jargon dictionary.
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