What’s a Fixed-Rate Mortgage?
A fixed-rate mortgage is exactly as it sounds – it’s where the interest rate is fixed for a certain period of time. Maybe it’s 10, 15 or 30 years – but for the entire length of that mortgage, that interest rate won’t change. This appeals to a lot of people because it gives them certainty.
What’s an Adjustable Rate Mortgage (ARM)?
An ARM has two components. The first is the fixed component, meaning that the interest rate is fixed for a certain period of time. This can be as short as six months or as long as 10 years. However, they all begin to adjust after that fixed period. They adjust up and down with the market.
At Quicken Loans, whether you choose the 5-, 7- or 10-year ARM, you’ll get the lowest rate we offer and save thousands over a traditional fixed-rate mortgage during the initial fixed-rate period. Afterwards, the rate may change according to the terms and your documentation. This may be in intervals of 6 months or a year, for example..
Should I Pick an ARM or Fixed-Rate Mortgage?
You might be wondering why you would take an ARM when you could have the certainty of a fixed-rate mortgage? The answer is simple; most ARMs come with a lower interest rate than the fixed-interest rate – that’s beneficial.
There’s also interest rate savings by taking that adjustable rate. For example, if you move in five years, are a first-time home buyer, getting married, or having children, you might strongly consider an ARM and take those savings.
Did you know that the average American moves every nine years and that the average 30-year fixed is on the books for only about five or seven years before people move or refinance?
So paying for 30-year money, which is more expensive, doesn’t always make sense – especially if you’re in a situation where you might be in a new mortgage sometime in the near future.
If you plan on staying in your home for a long period of time, a fixed mortgage could make the most sense for you.
Working with a good Home Loan Expert will help you understand the pros and cons so you’ll be able to match your situation with the right mortgage product.
And if you need help answering your mortgage calculating questions, check out our Quicken Loans Mortgage Calculator app.
Have any questions? If so, ask us in a comment!
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