Fixed-Rate Mortgages
A fixed-rate mortgage means the interest
rate and principal payments
remain the same for the entire life of the
loan. (Taxes, of course, may change.)
Advantages: Consistent principal and interest
payments make this
loan stable your rate won’t change,
so you don’t need to worry about market
fluctuations. A good choice if you’re
likely to stay in this house for a long
time.
Disadvantages:
May cost you more — these loans
are usually priced higher than an adjustable-rate
mortgage. Keep in mind that, on average,
most people move or refinance within seven
years. If rates in the current market
are high, you’re likely to get a
better price with an adjustable-rate loan.
Adjustable-Rate Mortgages
An adjustable-rate mortgage (ARM) means
that the interest rate
changes over the life of the loan —
according to the terms specified in advance.
With ARMs:
 The
initial interest rate is usually lower
than with a fixed-rate mortgage.
The
monthly repayment would also be lower.
The
interest rate may be adjusted (up or down)
at predetermined times.The monthly payment
will then increase or decrease.> Most
ARM programs do offer "rate cap"
protection, which limits the amount the
rate can be increased, both each year
and over the life of the loan. All ARMs
are amortized over 30 years.
Advantages:
ARMs are usually priced lower than fixed-rate
mortgages so you can increase your buying
power and lower your initial monthly payments.
If interest rates go down, you’ll
enjoy lower payments. Usually an ARM is
the best choice for homeowners who plan
to relocate (for example, with their company
or the military), or for those who are
purchasing their first home and plan to
be in the property only for three to five
years. Remember that, on average, most
people move or refinance within seven
years.
Disadvantages:
Your monthly payments can increase if
interest rates go up. Keep in mind that
ARMs are best for homeowners who aren't
planning on staying with a property for
a long period. If you’re on a fixed
income, an ARM (especially a short-term
ARM) may not be your best choice.
Adjustable-Rate
Mortgages
An adjustable-rate mortgage (ARM) means
that the interest rate
changes over the life of the loan —
according to the terms specified in advance.
With
ARMs:
The
initial interest rate is usually lower
than with a fixed-rate mortgage.
The
monthly repayment would also be lower.
The
interest rate may be adjusted (up or down)
at predetermined times. The monthly payment
will then increase or decrease. Most ARM
programs do offer "rate cap"
protection, which limits the amount the
rate can be increased, both each year
and over the life of the loan. All ARMs
are amortized over 30 years.
Advantages:
ARMs are usually priced lower than fixed-rate
mortgages so you can increase your buying
power and lower your initial monthly payments.
If interest rates go down, you’ll
enjoy lower payments. Usually an ARM is
the best choicefo homeowners who plan
to relocate (for example, with their company
or the military), or for those who are
purchasing their first home and plan to
be
in the property only for three to five
years. Remember that, on average, most
people move or refinance within seven
years.
Disadvantages:
Your monthly payments can increase if
interest rates go up.
Keep in mind that ARMs are best for homeowners
who aren't planning on
staying with a property for a long period.
If you’re on a fixed income, an
ARM
(especially a short-term ARM) may not
be your best choice.
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