Fixed-Rate vs Adjustable-Rate Mortgages

Fixed-Rate Mortgages
A fixed-rate mortgage offers a steady interest rate and predictable monthly payment that will remain the same for the life of the loan. This predictability makes it easier to set your budget. When planning to stay in a home for many years, a fixed-rate mortgage is likely your best financing option.

  • 10-, 15-, 20- and 30-year fixed rate (conventional) mortgages
  • No Private Mortgage Insurance (PMI) required on many conventional loans
  • Personal guidance from application to closing

Adjustable-Rate Mortgages (ARMs)
An Adjustable-Rate Mortgage (ARM) is an excellent option for borrowers who plan to be in their homes for a short time, between three and ten years. With an adjustable-rate mortgage, you benefit from a lower introductory rate for a set period of time. However, this loan type has an interest rate that may change periodically depending on changes in the financial market. When the rate changes, generally, your monthly payment will increase if rates go up and decrease if rates fall.

An ARM is named by the length of time the interest rate remains fixed and how often the interest rate is subject to adjustment thereafter. An ARM features an initial fixed interest rate period, typically of 3, 5, 7 or 10 years. After this introductory fixed-rate period expires, the interest rate becomes adjustable for the remainder of the loan term. For example, a  5/1 ARM has a 5-year introductory period in which the interest rate remains fixed. The “1” shows the interest rate is subject to adjustment once per year after the introductory period expires.

All ARM programs have a “cap” that prevents your monthly payment from increasing too much at once. In addition, all ARM programs have a “lifetime cap”—your interest rate can never exceed that cap amount, no matter what.

To learn more about Mortgages, see our Government Mortgage Options and Piggy-Back Mortgage pages.