inception-app-prod/OTJlZGExZTktMWQ4Yi00M2U3LWFiMGUtMzdhY2NlNzczMDg1/logo/2017/12/logo2%5B1%5D-2.png
TAGHOME.COM
  • Home
  • Listings Search
    • $250,000-$500,000
    • $500,000-$750,000
  • About
  • Buyer Resources
    • 4 Questions to Ask Before Buying a Home
    • Finding Your Dream Home
  • Seller Resources
    • 4 Questions to Ask Before Selling a Home
  • Home Worth
aaronc@realtracs.com
615-390-8473
Sign In
Sign Up
inception-app-prod/OTJlZGExZTktMWQ4Yi00M2U3LWFiMGUtMzdhY2NlNzczMDg1/logo/2017/12/logo2%5B1%5D-2.png
TAGHOME.COM
  • Home
  • Listings Search
    • $250,000-$500,000
    • $500,000-$750,000
  • About
  • Buyer Resources
    • 4 Questions to Ask Before Buying a Home
    • Finding Your Dream Home
  • Seller Resources
    • 4 Questions to Ask Before Selling a Home
  • Home Worth
inception-app-prod/OTJlZGExZTktMWQ4Yi00M2U3LWFiMGUtMzdhY2NlNzczMDg1/logo/2017/12/logo2%5B1%5D-2.png
TAGHOME.COM
  • Home
  • Listings Search
    • $250,000-$500,000
    • $500,000-$750,000
  • About
  • Buyer Resources
    • 4 Questions to Ask Before Buying a Home
    • Finding Your Dream Home
  • Seller Resources
    • 4 Questions to Ask Before Selling a Home
  • Home Worth
inception-app-prod/OTJlZGExZTktMWQ4Yi00M2U3LWFiMGUtMzdhY2NlNzczMDg1/logo/2017/12/logo2%5B1%5D-2.png
TAGHOME.COM
inception-app-prod/M2FkZTNlOTAtNWIwNy00M2EwLWI0OWEtZjAzNGIwNTg4NjY3/content/2017/12/What You Need to Know About Fixed vs. Adjustable Rates.jpg

What you Need to Know About Fixed vs. Adjustable Rates

inception-app-prod/OTJlZGExZTktMWQ4Yi00M2U3LWFiMGUtMzdhY2NlNzczMDg1/logo/2017/11/Homes For Sale 593_2 %281%29.jpg
Charles T. Aaron

You're about to become a first-time homeowner—this is an exciting time! As you begin working with lenders on securing pre-approval for a mortgage, you probably hear some terms when it comes to mortgage interest rates such as "fixed" and "adjustable." To help you make a smart decision, here’s what you need to know about these types of interest rates.

 

Interest Rate 101

An interest rate is the cost of borrowing money. When you borrow money to purchase a home, the interest rate applies to how much the home will cost you with borrowed money rather than saving a lump sum for the entire purchase price.

 

Fixed Interest Rate

The most straightforward type of rate is a fixed one. With a fixed interest rate, this means the rate and payments stay the same, regardless of what's happening with the economy. Some homebuyers may be drawn to fixed interest rates since they offer rate security, making for easy budgeting, though it can end up costing more money in the long run. 

In the event rates go down, homeowners with fixed-rate mortgages will need to refinance. Refinancing with a reduced rate will save you some money, but keep in mind there will be upfront closing costs and time spent getting approved for a mortgage all over again with your tax documents, bank statements, and more. 

Adjustable Interest Rate

Often referred to as an Adjustable Rate Mortgage, or "ARM," these types of loans can seem complicated to a first-time homebuyer. With an adjustable interest rate, borrowers are offered lower rates and subsequently lower monthly payments early in the mortgage loan term. ARMs let borrowers take advantage of falling interest rates without needing to refinance. When you refinance, there’s a significant time investment, and it will cost money each time you refinance. When you have an ARM, you can watch rates and your monthly payment fall without having to do anything.

 

An adjustable rate is a less expensive way for homebuyers who don’t plan on staying in one place for very long.

 

On the flip side, with an ARM, your rates and payments can also go up over the life of your mortgage loan. These rates will usually have an annual cap, so if rates rise significantly and quickly, you might not be affected right away. On certain ARMs, called negative amortization loans, borrowers could wind up owing more than they did at closing because the payments on these loans are set so low to make the loans affordable that they cover only part of the interest due. The rest ends up getting baked into the principal balance.

 

The low initial cost of adjustable-rate mortgages might be tempting, but they bring a degree of risk and uncertainty in the long run.

 

Fixed or Adjustable Interest Rate: Which Is Better?

There isn’t a straightforward answer about which type of interest rate might be better than the other. There are several unique factors to take into account such as the length of your loan, the index your lender uses, the number and timing of rate adjustments, and any assumptions about the future increase or decrease in rates.

 

Work with a reputable and trustworthy lender to review the pros and cons of each type of interest rate for your situation. Have questions or just looking for a little advice on where to start? Get in touch!

Print Details
Previous post
Next post
Dealing with Financing
21 Things A Real Estate Agent Should Do For You

Have a question?

Send
Submitting
Succes! Your message was sent!
Great! We will contact you shortly.
Oops! Error occurred.

Search listings

Enter city, zip, neighborhood, address…
Loading in progress…
No results found
Type in anything you’re looking for
Search

Office

The Aaron Group dba TAG
P.O. Box 306Brentwood
TN 37024
615-385-1055
aaronc@realtracs.com

Helpful resources

  • Home
  • Listings Search
  • About
  • Buyer Resources
  • Seller Resources
  • Home Worth

Consumer Protection & Privacy

  • Accessibility
  • DMCA Compliance
For ADA assistance, please email compliance@placester.com. If you experience difficulty in accessing any part of this website, email us, and we will work with you to provide the information.
inception-app-prod/OTJlZGExZTktMWQ4Yi00M2U3LWFiMGUtMzdhY2NlNzczMDg1/logo/2017/12/logo2%5B1%5D-2.png

© 2022 All rights reserved

Created with Placester

Sign in

Sign in with your email address

Sign In
Forgot your password?
Create an account
You have been successfully logged in
The page will reload automatically.
Go to the homepage
Sorry something went wrong
Login or password are incorrect. Please try again.
Try again

Sign Up

Sign Up
Already a User? Sign In
You have been successfully registered
Please check your email.
Go to the homepage
Sorry something went wrong
Please try again.
Try again

Reset password

Enter your email address

Reset password
Return to Log In
Reset password email has been sent.
Go to the homepage
Sorry something went wrong
Please try again.
Try again

Change password

Change password
Your password has been successfully reset.
Go to the homepage
Sorry something went wrong
Please try again.
Try again
Send
Succes! Your message was sent!
Back to homepage
Oops! Error occurred.
Please try again.
Back to form
Already a User? Sign In

Account verification in progress

Please wait...

Account Verified!

You may now log in into your account
Go to the homepage

Verify your email address

In order to log in to your account, you need to confirm your email address. Please check your inbox!
Go to the homepage

Share this listing

Copy Link