Mortgage Rates: Fixed Versus Adjustable
Knowing Your Options With Home Mortgages
The most common interest structure for a residential purchase in the United States is a fixed rate mortgage. The initial interest rate is established with the lender and remains the same for the total duration of the loan.
An adjustable rate mortgage (also known as an A.R.M./variable rate mortgage/floating rate mortgage) is where the rate is dependent upon the market and changes periodically throughout the loan's duration.
Choosing The Right Home Mortgage Type For Your Loan
Of these two inherently contrasting types of mortgage loans for a residential purchase, neither one is definitively better. The pros and cons vary dependent upon different borrowers' situations and market conditions. Knowing those advantages will help you determine what is the right fit.
Why Fixed Rate?
The fixed rate mortgage allows for a sense of security in having a pre-established cash outflow for the entire term. Floating rate mortgages will NOT afford that security and predictability.
Why Adjustable Rate?
With the floating rate, you are subject to the rise and decline of interest rates depending on the market. However, there is also potential for significant cost savings with the floating rate mortgage *if* the rate lowers enough.
Of course this is not a possibility with the fixed rate.