What is the Difference Between a Fixed-Rate Mortgage and an Adjustable-Rate Mortgage?

Published On:
July 13, 2022

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Comparing all your mortgage options can seem overwhelming, especially when considering rates and what is best for you and your family. You may be hearing about adjustable-rate mortgages (ARM) and are wondering what they are and how they may be able to help you. Keep reading to learn how these compare to a traditional fixed-rate mortgage and what you should consider when looking for the right mortgage.

What is an ARM?

Before we can talk about the main differences, we need to know what an ARM is. An ARM is a mortgage that has an interest rate that adjusts over time based on the market. ARMs will start with a lower interest rate, however, after an initial time frame, the rate will start to change. When your rate will begin to adjust is determined by the type of ARM you get. For example, a 7/6 ARM will have a set interest rate for the first 7 years; after that, the rate can adjust every six months. Adjustable-rate mortgages do have set intervals to prevent your rate from adjusting all at once and caps for the highest the rate can go. *Arbor Financial offers 3/6, 5/6, and 7/6 ARMs.

What is the Difference Between an Adjustable-Rate and a Fixed-Rate Mortgage?

The main difference between an ARM and a fixed-rate mortgage is the rate adjusting. A fixed-rate mortgage will have the same rate for the life of the loan compared to the ARM, which will adjust after a set amount of time. Having a set rate can help homeowners budget for the long term. An ARM also starts at a lower rate than traditional mortgages; this can be helpful if you are looking to pay down the principal more quickly. If rates do fall, an ARM may help you take advantage of lower rates without needing to refinance.

Questions You May Want to Ask When Considering an ARM:

  • How long do you plan to live in your home?
  • How often will your rate adjust, and how long will your initial rate be?
  • Can you still comfortably afford the payments at the loan cap?
  • Is a lower initial payment or a set long term payment more important to you?

Finding out what is the best option for you can be a stressful experience. Our friendly, knowledgeable mortgage specialists can take the pressure out of mortgages and help find the best option for you. Speak to a mortgage specialist!

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*Subject to underwriting and credit approval. Other restrictions may apply. Not all applicants will qualify. Programs, rates, terms, and conditions are subject to change without notice.

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