Choosing between a fixed-rate and adjustable-rate mortgage is one of the most important decisions in your home buying journey. Each option has distinct advantages depending on your financial situation and risk tolerance.
Fixed-Rate Mortgages (FRM)
With a fixed-rate mortgage, your interest rate remains constant throughout the entire loan term, providing predictability and stability.
✅ Advantages
- Consistent monthly payments for budgeting ease
- Protection against rising interest rates
- Simplified financial planning
- Peace of mind with no payment surprises
❌ Disadvantages
- Higher initial interest rates compared to ARMs
- No benefit if market rates decrease
- Less flexibility in changing market conditions
Adjustable-Rate Mortgages (ARM)
ARMs typically start with a lower interest rate that adjusts periodically based on market conditions. The most common structure is the 5/1 ARM, where the rate is fixed for 5 years, then adjusts annually.
Key ARM Features
ARM vs. Fixed-Rate Comparison
Making the Right Choice
Consider an ARM if you:
- Plan to sell or refinance within 5-7 years
- Want to maximize buying power with lower initial payments
- Are comfortable with payment uncertainty
Choose a fixed-rate mortgage if you:
- Plan to stay in your home long-term
- Prefer predictable monthly payments
- Are risk-averse regarding interest rate fluctuations
💡 Credit Score Impact
Your credit score is one of the most critical factors in determining your mortgage interest rate and loan terms. Understanding this relationship can save you tens of thousands of dollars over your loan's lifetime.
Credit Score Ranges and Typical Rates
*Based on $300,000 loan, 30-year term. Rates vary by lender and market conditions.