Fixed and Adjustable Rate Mortgages
Fixed- and adjustable-rate mortgages are two of the most popular loan types for buying or refinancing a home. Both options are available for conventional conforming loan amounts, non-conforming loan amounts ("jumbo"), and FHA or VA programs.
Fixed-rate mortgage
Features
- Your interest rate and monthly principal and interest (P&I) payments remain the same for the life of your loan
- Available in a variety of loan term options
Benefits
- Predictable monthly P&I payments allow you to budget more easily
- Protection from rising interest rates for the life of the loan, no matter how high interest rates go
- May be a good choice if you plan to stay in your home for a long time
Considerations
- The overall interest you pay is higher on a longer-term loan than on a shorter-term loan
- On a shorter-term loan, the monthly P&I payment is typically higher than on a longer-term loan
Adjustable-rate mortgage
Features
- Your interest rate and monthly principal and interest (P&I) payments remain the same for an initial period of 3, 5, 7, or 10 years, then adjust annually
- Includes an interest rate cap that limits how high your interest rate can go
Benefits
- Typically ARMs have a lower initial interest rate than on a fixed-rate mortgage
- The interest rate cap limits the maximum amount your P&I payment may increase at each interest rate adjustment and over the life of the loan
- May provide flexibility if you expect future income growth or if you plan to move or refinance within a few years
Considerations
- Monthly principal and interest payments may increase when the interest rate adjusts
- Your monthly principal and interest payments may change every year after the initial fixed period is over