Fixed-rate mortgages (FRMs) and adjustable-rate mortgages (ARMs) are two of the most popular home loan options available to borrowers. While both types of mortgages offer advantages, it’s important to understand the pros and cons of each before making a decision.
Pros of a Fixed-Rate Mortgage
A fixed-rate mortgage is one of the most common loan types due to the predictability it provides. With a fixed-rate loan, borrowers know exactly what their monthly payments will be for the life of the loan, making budgeting much easier. Additionally, since the interest rate doesn’t fluctuate, borrowers can avoid the risk of rising interest rates.
Pros of an Adjustable-Rate Mortgage
An adjustable-rate mortgage can be a great option for borrowers who plan to move or refinance in a few years. With an ARM, the interest rate is typically lower than a fixed-rate loan for an introductory period, making it an attractive option for those who want to save money in the short-term. Additionally, ARMs can be beneficial for borrowers who are expecting their income to rise in the near future, as they can take advantage of a lower initial rate that can adjust with their income.
Cons of a Fixed-Rate Mortgage
One of the biggest drawbacks of a fixed-rate mortgage is that they typically have higher interest rates than ARMs. This can make them more expensive in the long run, especially if interest rates fall. Additionally, borrowers may be stuck with a loan that is more expensive than current market rates.
Cons of an Adjustable-Rate Mortgage
The biggest downside of an ARM is the risk of rising interest rates. If the interest rate increases, so does the monthly payment. This can be a major financial burden for borrowers, especially if they are already struggling to make payments on the loan. Additionally, ARMs can be difficult to refinance if interest rates rise.
Both FRMs and ARMs have their advantages and disadvantages. It’s important to carefully consider all of your options before making a decision. Be sure to talk to a qualified mortgage professional to learn more about the pros and cons of both types of loans.
