A.R.M or a Fixed Rate
So you are exploring loan options and your Lender tells you, so would you prefer to go with an Adjustable Rate Loan or Fixed Rate Loan? and you are probably wondering what the heck he is talking about? Let me Elaborate of the differences.
This loan is designed for someone who is probably not going to live in that home for a long time, maybe 5-7 years . So with this loan, the interest rate you get maybe noticeably lower the other options initially but depending on the loan after 5 or 7 years that rate can either raise significantly or it can drop depending on the Interest rate Index. So if you are planning on buying again in 10 years or less.. then this option may be good for you. But for someone who plans on making that home a forever home, this next option may be more up your alley!
This type loan is ideal for someone who prefers a consistent interest rate and does not have any immediate plans to move or sell the property in less that 10 years. There are many options with this type of loan: 10 year fixed, 15 year fixed, 30 year Fixed. These loans are amortized in a way that by the end of the term this loan will be entirely paid off. The interest rate is fixed meaning, unless the person decides to refinance they are stuck with whatever interest rate they had when they initially began the loan.
Okay now that you know the difference between the two lets way the pros and cons
Lower initial Interest Rate
Starts out with a Fixed Rate
Not for someone who wants to live in their home a long time
The interest rate can double or triple after 5 or 7 years
Fixed Rate Pros
Fixed interest Rate
Consistent monthly payment
Longer term options
Great for living in the home past 10 years
Fixed Rate Cons
Higher Interest Rate
You cannot change your interest rate unless you Refinance
the loan can take longer to pay off