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What Are the Differences Between Fixed Rate and Adjustable Rate Mortgages?

What Are the Differences Between Fixed Rate and Adjustable Rate Mortgages?

Mortgage rates determine the interest you will pay over time based on the principal of your loan amount.

Mortgage Rates

Mortgage rates can have a big impact on the forecast of your loan in years to come. Learning more about the basic structure of each interest rate can help you to make a more informed financial decision. Here’s what you need to know:

Fixed Rate Mortgage

A fixed-rate mortgage is essentially exactly what it sounds like – this structure of loan has an interest rate that does not fluctuate throughout the terms of the mortgage. Each month, the borrower pays the same amount.

This can be great for simple budgeting, but not great if you get stuck with a rate that puts too much strain on your income over time. However, it does protect the borrower from sudden and potentially significant changes in the interest rate payments.

Adjustable Rate Mortgage

An adjustable-rate mortgage is also seemingly self-explanatory. This structure of loan implies some turbulence with regards to the interest rate over time. The initial interest rate is generally set below market rate and then increased over time.

An ARM can be the perfect solution for any borrower who has temporary cash flow problems. The adjustment rate takes place over time at a pre-arranged tempo, so although there is a hike in payments eventually, it is easy to anticipate and make provisions for the increase.

Both loan options have attractive features. Depending on the financial outlook of the borrower, a fixed rate or adjustable rate mortgage can have different points of merit. Either way, both options require careful consideration of your financial future as you determine which is the best choice for you.

Trying to decide the types of mortgage rates that are best for your situation? Contact the professionals at Midland Mortgage and learn more about the mortgage rate that’s right for you.

Posted Apr 29, 2015 by Midland Mortgage Corporation