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Home Buyer
Should You Pick a Fixed or Adjustable-Rate Mortgage Loan?


A look at the difference between fixed and adjustable-rate mortgage loan options.

The correct answer to this question comes down to personal preference. An Adjustable Rate Mortgage (ARM) is just what it sounds like— the rate on the mortgage has the opportunity to adjust. The most common ARM loan products you will see are 5/1, 7/1 and 10/1 ARMs.

The first number refers to the time the initial rate is fixed for and the second number refers to how many times per year the rate can adjust after the initial fixed period. The lower the fixed period is, the better the initial interest rate is.

For example, a 5/1 ARM is fixed for 5 years and then can adjust only once per year starting in the 6th year of the loan. These types of loans are most popular with short term living situations and larger loan amounts.

In recent years they have become less popular as 30-year fixed rates have gotten so low. The fixed rate option allows you to purchase a home and have the same interest rate for the life of the loan. Most common are 30, 20, 15 and 10 year fully amortized fixed rate loans. The lower the term, the lower the interest rate.