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What is the Difference Between a Fixed Rate vs ARM

By Dee Collard

When speaking with a mortgage professional or visiting a bank's website, buyers will be introduced to a number of different mortgage packages and products, each designed for different types of customers, such as first time buyers, veterans, low-income buyers, and more. But every mortgage product is a variation of two distinct mortgage types: Fixed and adjustable rate.

A Fixed Rate Mortgage (FRM)

A Fixed Rate Mortgage is a loan issued with a constant interest rate, meaning the rate will not change during the life of the mortgage. This allows you to "lock in" the rate, making it an attractive option when rates are low. The unchanging interest allows for more stable, predictable housing costs each month, and is useful if you want a predictable payment schedule.

An Adjustable Rate Mortgage (ARM)

An Adjustable Rate Mortgage has rates that change at times, usually affected by an outside indicator like the prime interest rate. Ceilings and floors are typically in place to prevent the mortgage from varying too drastically. Adjustable Rate Mortgages offer low rates for the first 5-7 years, at which point the rate will then periodically "adjust" to match market rates. Adjustable Rate Mortgages are an attractive option if you are expecting a rise in your income, or considering only short-term homeownership in which you can take advantage of the initial low rates before re-selling.


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