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What's the Difference Between Fixed and Adjustable-Rate Mortgages?

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If you’ve started perusing home listings, now’s the time to start thinking about which type of home loan is right for you. Depending on your circumstances, there generally are two main options when it comes to mortgages: a fixed-rate mortgage and an adjustable-rate mortgage (ARM). Read on to help decide which one is right for you.
 

Fixed-rate mortgage

A fixed-rate mortgage carries the same interest rate and monthly payment over the life of the loan. The main advantage of a fixed-rate loan is that you are protected from sudden increases in monthly mortgage payments if interest rates rise. This stability can bring peace of mind to many home buyers. It also helps you more easily forecast future spending.

Fixed-rate mortgages are ideal for home buyers who plan on staying in the home for a long period of time or prefer the consistency of a set monthly payment.
 

ARMs

ARMs are designed so their interest rates can go up or down over the life of the loan. Generally, with an ARM, you’ll get a lower interest rate for the first few years, but it can rise or fall at specified intervals. For instance, one of the most popular ARM options is the 5/1 ARM. It has a low, fixed-interest rate for the first five years, and once this time period ends, the rate is adjusted with current market conditions.

ARMs are ideal for homeowners who plan on moving within a half dozen years or who expect a significant income growth over the next few years.
 

Making your decision

Ultimately, your decision to get a fixed-rate or adjustable-rate mortgage comes down to a range of personal factors and your financial situation (both now and in the coming years). If you’d like to discuss your options in more detail, a Mountain America mortgage specialist would be more than happy to help.

To see the difference in payments, schedule a meeting with one of our mortgage experts.

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