Fixed and Adjustable-rate Mortgages (ARMs)

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What is a Fixed-Rate Mortgage?

A fixed-rate mortgage is a home loan option with a specific interest rate for the entire term of the loan. With a fixed rate mortgage, the interest rate on the mortgage will not change over the lifetime of the loan. This means the borrower’s interest and principal payments will remain the same each month. The main advantage of a fixed-rate loan is that the borrower is protected from sudden and potentially significant increases in monthly mortgage payments if interest rates rise. Fixed-rate mortgages are easy to understand for most borrowers and vary little from lender to lender. The disadvantage of fixed-rate mortgages is that if interest rates fall, your mortgage rate won’t automatically fall along with it. Instead, if you want to take advantage of the lower rates, you would need to refinance, and refinancing may come with closing costs.

What is an Adjustable-Rate Mortgage (ARM)?

Adjustable-rate mortgages (ARMs), also known as variable-rate mortgages, have an interest rate that may change depending on fluctuation in a corresponding financial index that's associated with the loan. With an ARM, you can expect your monthly mortgage payment to change periodically, increasing or decreasing in response to the index rate going up or down.
ARM loans are usually named by the length of time the interest rate remains fixed and how often the interest rate is subject to adjustment thereafter. For example, in a 5y/6m ARM, the 5y stands for an initial 5-year period during which the interest rate remains fixed while the 6m shows that the interest rate is subject to adjustment once every six months thereafter.

Which Type of Loan is Right for me?

Fixed-rate mortgages are the right choice for you if you are looking for predictability and stability. With a fixed-rate mortgage you are able to lock in a low interest rate, and you will know exactly how much interest you'll pay over the life of your loan. With a fixed-rate mortgage you won't have to worry about refinancing later if interest rates rise. A fixed-rate mortgage is best if
Adjustable-rate mortgages (ARMs) may be the right choice for you if you are comfortable with the risk of a fluctuating rate. An ARM might be right for you if you plan to move before the end of the introductory fixed-rate period, because in that case you wouldn’t be as concerned about possible rate increases. Adjustable-rate mortgages (ARMs) may also be a good choice for you if you are looking for an initial monthly payment lower than a fixed-rate mortgage usually offers. Borrowers may also elect to choose an ARM if they think interest rates may go down in the future. At Elev8 Mortgage in Bend and Central Oregon, we work with our clients to find the best mortgage product for your needs.