If you’re in the market to purchase a home or looking to refinance, then you may want to consider whether an adjustable-rate mortgage (ARM) is a better fit than a fixed rate mortgage.

Here at Flat Branch, we believe in empowering homebuyers to make the best decisions when it comes to their financial goals. Knowing the difference between a fixed-rate mortgage and an adjustable-rate mortgage can help you be more empowered about the homebuying process.

What is a Fixed-Rate Mortgage?

The most popular type of financing, a fixed-rate mortgage maintains a consistent interest rate for the entire duration of the loan. While your overall payment can change depending on taxes and homeowners' insurance, your monthly payment of principal and interest won’t change under a fixed-rate mortgage. A fixed-rate mortgage is predictable.

What is an Adjustable-Rate Mortgage?

Adjustable-rate mortgages, typically 30-year loans, start with a fixed interest rate for an initial period, after which the rate adjusts periodically.

At the start of your loan, you'll receive an introductory rate that’s generally lower than the average fixed mortgage rates. This rate remains constant for a set period, anywhere from 3 to 10 years. Once this period ends, your interest rate will adjust up or down according to an index.

Which is Better?

When it comes to choosing which mortgage rate is better, it depends on you and your unique financial goals.

Fixed-Rate Mortgages

Long-Term Stability: If you plan to stay in your current home for a long time, a fixed interest rate offers predictability, making it easier to manage your budget.

Predictable Payments: Unlike ARMs, which start with a lower rate that can change over time, fixed-rate loans allow you to plan for consistent payments of principal and interest each year, without being affected by market fluctuations.

Beneficial in Low-Rate Markets: When interest rates are low, locking in a fixed rate can lead to significant savings over the life of your loan.

Adjustable-Rate Mortgages

Ideal for Starter Homes: If you’re buying a starter home and expect to move within a few years, ARMs can help you build equity and take advantage of lower initial rates while you save for a future home.

Approaching Retirement: If you’re near retirement and plan to sell soon, an ARM’s lower interest rates can support greater retirement savings.

Suitable in High-Rate Environments: When rates are high, ARMs offer flexibility. As market rates decrease, your interest rate may also drop, reducing your payment over time.

What Should You Choose?

Choosing a mortgage rate that is best for you and your needs is a tough decision. Flat Branch Home Loans is here to assist you at every step of this process. Need some help from one of our expert loan officers? We’re here to help: Flat Branch Home Loans | Our Team

Fixed-Rate Mortgage vs Adjustable-Rate Mortgage