Adjustable rate mortgages and fixed rate mortgages are common home loan types with big differences. Choosing the wrong type for your situation could cost you a lot. Each loan type is pretty much like their names suggests: A fixed rate locks a specific interest rate for the length of the loan while the rate for an ARM can adjust up or down over time. Most lenders offer both loan types.
Whether to choose an adjustable rate mortgage vs. a fixed rate mortgage depends on several factors. The current market interest rates, your financial situation and plans for the home or a combination of these might influence the best decision for you. If you intend to keep the home and/or the loan for only a few years or several can also be a contributing factor in your decision. Below are a few pros and cons to keep in mind about each. Of course, it’s best to consult with a lending professional before finalizing your decision.
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Know the pros and cons of these two popular loan types before you sign on the line.
Adjustable Rate Mortgages (ARM):