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Fixed vs adjustable-rate mortgage

By HomeHunterGuide editors · Updated · About HomeHunterGuide

A fixed-rate mortgage keeps the same rate for the whole loan. An adjustable-rate mortgage (ARM) starts with a fixed period, then the rate changes.

Fixed-rate

  • Same principal and interest payment for 15 or 30 years.
  • Simple and predictable.

Adjustable-rate (ARM)

  • A 5/6 ARM is fixed for 5 years, then adjusts every 6 months. A 7/6 is fixed for 7 years.
  • Caps limit how much the rate can rise at the first adjustment, each later adjustment and over the life of the loan.
  • The starting rate is often lower than a 30-year fixed, but not always.

Who each suits

  • Fixed: most buyers planning to stay put, and anyone who values predictable payments.
  • ARM: buyers confident they will sell or refinance before the fixed period ends, who could still afford the payment if rates rise to the caps.

Ask your lender for the worst-case payment under the caps before choosing an ARM.

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