Fixed Rate Vs. Variable Rate

When it comes to mortgages, the most difficult decision buyers face is choosing between a fixed or variable rate. The right choice depends on desired loan features, individual finances and several other personal factors.

Fixed Rates

Mortgages with fixed rates usually last for many years. A rate is determined at the term's beginning, an that rate is locked in for the life of the loan. People who prefer longer loan terms usually choose this option.

Advantages:
-Monthly payment amounts are always the same.
-Predictable payments provide emotional security.

Disadvantages:
-A longer term means more interest is paid over the life of the loan.
-It is harder to get approved for a fixed rate.

Adjustable Rates

When the market's average interest rate rises or falls, so do the rates on an ARM. This is how they differ from loans with fixed rates. Buyers who choose ARMs usually want to save money and make a larger down payment.

Advantages:
-When rates are low, the savings are great.
-Intense bank competition means a smaller spread of rates.
-The repayment term is short.

Disadvantages:
-Rates rise and fall without warning.
-Rates are dependent on the economy.
-Monthly payments vary.