What’s the Difference Between an ARM and Fixed Rate Mortgage?

Consumers have options when it comes to financing a home and two of the most frequent types of mortgages used in the marketplace are ARM’s (Adjustable Rate Mortgage) and a Fixed Rate Mortgage. Here are the main differences between the two.

When you walk into a bank to get approved for a loan the lender will explain to you the loan options that might work best for your situation. These loan options are often packaged in the form of an Adjustable Rate Mortgage or a Fixed Rate Mortgage. ARM’s have monthly payments that can move up and down over the course of it’s life as interest rates fluctuate. Often times a borrower’s payments can start low and increase overtime but never beyond a certain point. On the other hand with a Fixed Rate Mortgage a borrower’s payments are locked for the duration of the loan unless the borrower decides to make additional payments towards the principle.

Depending on a buyer’s needs an adjustable rate mortgage may be sensible as a way to acquire the home due to the low payments but at some point the borrower might consider refinancing to a fixed mortgage to give them payment stability.

Ultimately, the choice for borrowers is quite simple. Do you want to a mortgage that has lower payments but change over time or do you want a mortgage where your payments are little more but never change?

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